Entrepreneurial Concepts Chapter 33

What is Entrepreneurship? The process of starting & managing your own business (big or small)

Who are Entrepreneurs People who attempt to earn & make profits by taking the risk of owning & operating a business.

60% of those who start a business are between the ages of 25 & 40

These people are most likely to have Work experience Personal drive Financial resources Willing to take business risks (adventurous)

Why not people over 40? They are already established in life Have money and experience but are reluctant to take risks.

Most businesses that survive Only employ a few people Provide a living only for the business owner and his/her family 1200 new business are started in the US every day…but of them will close their doors in the first years 2/3 4

Advantages of Entrepreneurship Personal Freedom – you pick your line of work, set the hours, YOU decide what you’ll do each day Personal Satisfaction – entrepreneurs have a passion for their business, they do it because they love it Potential for increased income – hard work and a good business concept will hopefully keep you from becoming a statistic Increased self-esteem – owning a business is gratifying, knowing that the business success is because of you

Disadvantages of Entrepreneurship Great risk and potential loss of income – high failure rate among new businesses Long, Irregular hours – 16+ hour days are the norm Need for daily discipline – many time consumnig tasks, there is no calling in sick!

Characteristic of a successful Entrepreneur Organizational skills Tremendous personal drive Leadership ability Skills/knowledge specific to operating a business May have “entrepreneurship” in their blood lines

What is self evaluation? Assessing one’s skills, interests & personal qualities as they relate to business ownership.

Business Ownership Options Starting your own independent business Advantage: you make all the decisions Disadvantage: takes the most skill to succeed Purchasing a Franchise Advantage: proven system & resources Disadvantage: usually requires a large amount of capital, may give up control over many aspects of the business.

Business Ownership Options Purchasing an existing business Advantage: may have a good reputation/name recognition Disadvantage: can inherit serious problems Taking over the family business Advantage: reputation & system in place Disadvantage: may strain relationships with family members

Forms of Business Ownership Sole Proprietorship – business owned/operated by one person Examples: plumber, tax consultant, pet groomer Advantages: Easy to start Make all decisions Lower taxes Less government regulation Receives all profit Disadvantages: May lack in all skills needed Limited capital (money) Unlimited liability - your financial liability (responsibility) is not limited to your investments, it also extends to your total assets - YOUR PERSONAL PROPERTY!

Forms of Business Ownership Partnership – Legal agreement between two or more people to be jointly responsible for a business General Partnership – each partner shares profit and losses Limited Partnership – each “limited” partner is responsible for any debts up to the amount he/she invested in the company. Limited partners have limited say in the daily operations of the business At least one person must be a general partner

Partnership Advantages: Combines skills of more than one owner Access to more capital Taxed and regulated less than corporations Disadvanges Owners may not always agree Partner’s actions are legally binding to other parties Business is dissolved if one partner dies Unlimited liability for general partners

Business Ownership Options Corporation – business that is chartered by a state and legally operates as a separate entity (apart from owners) Can be publicly or privately held Stockholders – owners of a corporation Have limited liability Board of Directors – governing body of a corporation CEO (Chief Executive Officer & Other Officers – hired by the board of directors to oversee the management of a corporation

Corporation (cont.) Foreign Corporation – incorporated under the laws of a state other than the one in which it does business. LLC (Limited Liability Corporation) – relatively new form of corporation, combines the positive qualities of partnerships & corporations Owners are called members Taxed like a partnership Owners have a limited liability

Corporation (cont.) Advantages: Limited Liability Easier to raise capital Easy of entry/exit Usually more resources to insure professional management Disadvantages: Complexity of forming Increased government regulation Double taxation Complex recordkeeping requirements

DBA (Doing Business As) – registration process by which the county officially recognizes that your business exists A small fee protects the name of your business for a period of time

Forming a Corporation File the Articles of Incorporation – with state department of commerce showing: Name and address of business Purpose Names of initial board Stock issued to each director Once processed and accepted by the state, the Articels of Incorporation become a Charter, and the corporation becomes a legal entity

Why must you license? Protect the public Establish minimum standards of education and training Maintain health and welfare of all citizens Regulate where a business can locate Protect the neighborhoods and the environment