FHF Ferrell Hirt Ferrell M: Business 2 nd Edition

6 FHF Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Small Business, Entrepreneurship, and Franchising

] [ Entrepreneurship The process of creating and managing a business to achieved desired objectives -this is a working definition FHF 6-3

FHF The World’s Wealthiest People Source: “The World’s Billionaires, 2009,” Forbes 6-4

FHF “Smallness” is relative. Small business is any independently owned and operated business, not dominant in its competitive area Employs less than 500 people. What is Small Business? 6-5

FHF The Small Business Administration(SBA) is an independent agency of the federal government that offers managerial and financial assistance to small businesses.Small Business Administration Supporting Small Businesses 6-6

FHF Impact of Small Businesses 6-7

FHF Small Businesses Represent: 60-80% of all new jobs, annually, created in the last 10 years 66% of the economy Employ 70% of workforce 6-8

FHF What People in the US Say is Their Idea of the American Dream Source: “USA Today Snapshots,” USA Today, April 2, 2009, A1. 6-9

FHF 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 Product customization is an advantage of small businesses Small Business Innovation 6-10

FHF Retailing and wholesaling, services, manufacturing and high technology are especially attractive to entrepreneurs. Popular Areas for Small Business 6-11

FHF Traits needed to Succeed in Entrepreneurship 6-12

FHF Selling directly to consumers Music stores Sporting-goods shops Dry cleaners Boutiques Drugstores Restaurants Hardware stores Retailing and Wholesaling 6-13

FHF 6-14

FHF Businesses that depend heavily on advanced scientific and engineering knowledge. 39% of high-tech jobs are in small businesses High Technology 6-15

FHF Costs Flexibility Focus Reputation Disadvantages High stress level High failure rate 90% of all new businesses fail within the first 5 years Undercapitalization Lack of funds to operate normally Managerial inexperience or incompetence Inability to cope with growth Advantages Small Business Ownership 6-16

Top 5 Biggest Challenges, Concerns & Goals of Small Businesses FHF 6-17

FHF Start with a concept or general idea Devise a strategy to guide planning & development Make decisions Form of ownership Financial resources needed Acquire existing business Start a new business Buy a franchise Starting a Business 6-18

FHF 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 The Business Plan 6-19

FHF Sole Proprietorship Partnership Corporation Forms of Business Ownership 6-20

FHF Provide your own personal capital Cash money Obtain capital Financing options ✴ loans ✴ stocks ✴ equity Financial Resources 6-21

] [ Equity Financing Selling or borrowing against the value of an asset (automobile, insurance policy, savings account) to obtain funds to operate a business FHF 6-22

[ ] FHF Equity Financing 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 6-23

[ ] FHF Borrowing financial resources typically from a bank or lending institution The Small Business Administration offers financial assistance to qualifying businesses Debt Financing 6-24

[ ] FHF An agreement by which a financial institution promises to lend a business a predetermined sum on demand Line of Credit 6-25

FHF 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 Franchising 6-26

FHF Training & support Brand name appeal National advertising Financial assistance Proven products Greater chance for success Disadvantages Advantages Fees and profit sharing Standardized operations Restrictions on purchasing Limited product line Possible market saturation Less freedom in decisions Franchises 6-27

FHF Fastest Growing Franchises 6-28

FHF Green/sustainable products represent a significant business opportunity for many small businesses Entrepreneur Kyle Berner works with Thai families to manufacture Feelgoodz Fair Trade flip-flopsFeelgoodz 1,000% increase in sales over first year Eco-friendly and100% natural Moving into West Indies and South American markets Going Green 6-29

FHF Demographic Trends The Boomers Generation Y Millennials Immigrants The Future for Small Business 6-30

FHF Technological & Economic Trends Internet usage continues to increase Increase in service exports Economic turbulence Deregulation of the energy market & alternative fuels The Future for Small Business (continued) 6-31

FHF Top Cities for Entrepreneurs Source: “Hot Cities for Entrepreneurs,” Entrepreneur. 6-32

FHF Common Approaches Large firms emulate smaller ones to improve bottom line Downsizing or rightsizing Acting small from inception – Southwest Airlines Intrapreneurs Individuals in large firms who take responsibility for the development of innovations within the organization Big Businesses Acting Small 6-33

FHF 6-34