PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 3 Understanding Entrepreneurship and Small Business

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–2 Key Topics Small business and its importance in the economy Entrepreneurship versus small business Starting and funding a small business Sole proprietorships, partnerships, and corporations Creating and managing corporations Corporate trends and issues

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–3 What Is “Small Business”? Independently owned and managed business that does not dominate its market

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–4 Job Creation InnovationInnovation Importance to Big Businesses Small business plays a critical role in the U.S. economy.

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–5 The Importance of Small Business in the U.S Percentage of All U.S. Businesses Total Employees Under or more Percentage of All U.S. Workers Total Employees Under or more Figure 3–2

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–6 Small Business by Industry Figure 3–3

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–7 “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.” —Victor Kiam

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–8 Entrepreneurship vs. Small Business Entrepreneur: Accepts the risks and opportunities of creating, operating and growing a new business. Small Business Owner: Does not have plans for growth.

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–9 Startups: Success and Failure Figure 3–3

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–10 Growth of Online Commerce Figure 3–4

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–11 Getting Started Starting From Scratch Buying an Existing Business

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–12 Financing the Small Business Personal resources Loans Venture capital companies Small-business investment companies Small Business Association (SBA)  Financial aid and management advice

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–13 An Ownership Opportunity Franchising: An Ownership Opportunity Advantages Proven business opportunity Access to managementexpertiseAdvantages Proven business opportunity Access to managementexpertise Disadvantages Start-up costs On-going payments Management rules and restrictions Disadvantages Start-up costs On-going payments Management rules and restrictions

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–14 Trends in Small Business Start-ups Emergence of E-commerce Crossovers From Big Business Opportunities for Minorities & Women GlobalOpportunities Increased Survival Rates

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–15 Profiles of Women Entrepreneurs Figure 3–5

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–16 Reasons for Success and Failure Failure  Poor management  Neglect  Weak control systems  Insufficient capital Success Hard work, drive, dedicationHard work, drive, dedication Market demandMarket demand Strong managementStrong management Luck!!!Luck!!!Success Hard work, drive, dedicationHard work, drive, dedication Market demandMarket demand Strong managementStrong management Luck!!!Luck!!!

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–17 Sole Proprietorships Advantages: Freedom Simple to form Low start up costs Tax benefits Disadvantages: Unlimited Liability Limited resources Limited fundraising capability Lack of continuity Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–18 Partnerships Advantages: More talent and money More fundraising capability Relatively easy to form Tax benefits Disadvantages: Unlimited liability Disagreements among partners Lack of continuity Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–19 Comparative Summary: Three Forms of Business Table 3–1

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–20 What is a Corporation? “An artificial being, invisible, intangible, and existing only in contemplation of the law.”

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–21 Corporations Advantages: Limited Liability Continuity Stronger fundraising capability Disadvantages: Double taxation Fluid control Complicated and expensive to form

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–22 Types of Corporations Closely Held (Private) Corporation Publicly Held (Public) Corporation Subchapter S Corporation Limited Liability Corporation (LLC) Professional Corporation Multinational or Transnational Corporation

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–23 Types of Corporations Table 3–2

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–24 Proportions of U.S. Firms in Terms of Type of Business and Sales Revenue Figure 3–6

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–25 Corporate Governance Hierarchy Officers Board of Directors Stockholders

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–26 Stockholders: Owners of Corporations Stock: A share of ownership in a corporation  Common Stock  Preferred Stock

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–27 Joint Ventures and Strategic Alliances Special Issues in Corporate Ownership Employee Stock Ownership Programs (ESOPS) Institutional Ownership Institutional Ownership

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–28 Mergers & Acquisitions (M&As) Special Issues in Corporate Ownership Divestitures & Spin-offs Mergers and Acquisitions (M&As) Divestitures & Spin-offs Divestitures and Spin-offs

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–29 Three Forms of Business Business Form LiabilityContinuity Management Investment Sources Personal, limited Ends with death or decision of owner Personal, unrestrictedPersonal Personal, unlimited Ends with death or decision of any partner Unrestricted or depends on partnership agreement Personal by partner(s) Capital invested As stated in charter, perpetual or for specified period of years Under control of board of directors, which is selected by stockholders Purchase of stock Proprietorship General Partnership Corporation Copyright ©2003 Prentice Hall, Inc

Copyright © 2005 Prentice Hall, Inc. All rights reserved.3–30 Chapter Review Define small business and explain its importance to the U.S. economy. Distinguish between entrepreneurship and small business. Describe the start-up decisions made by small businesses and the potential sources of financial aid and management advice. Describe sole proprietorships, partnerships, and corporations, and explain the advantages and disadvantages of each. Identify the different types of corporations.