PowerPoint Presentation by Charlie Cook The University of West Alabama Business Essentials Ronald J. Ebert Ricky W. Griffin The Contemporary Business World 11 6e © 2007 Prentice Hall, Inc. All rights reserved. ENTREPRENEURSHIP, NEW VENTURES, AND BUSINESS OWNERSHIP 3

© 2007 Prentice Hall, Inc. All rights reserved.3–2 L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: 1. Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 2. Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 3. Describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 4. Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.

© 2007 Prentice Hall, Inc. All rights reserved.3–3 L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: 5. Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 6. Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations. 7. Explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.

© 2007 Prentice Hall, Inc. All rights reserved.3–4 What’s in It for Me? By understanding the material discussed in this chapter, you’ll be better prepared to: 1. Understand the challenges and opportunities provided in new venture start-ups 2. Assess the risks and benefits of working in a new business 3. Evaluate the investment potential inherent in a new enterprise

© 2007 Prentice Hall, Inc. All rights reserved.3–5 What Is a “Small” Business? Small Business Defined  A business that is independent (not part of a larger business) and that has relatively little influence in its market.  中小企業的定義： 製造業、營造業、礦業及土石採取業等三業，係以實收資本額在 新台幣 8 千萬元以下者，或經常雇用員工數未滿 200 人者為中小企 業；其餘行業則以前一年營業額在新台幣 1 億元以下者，或經常 雇用員工數未滿 50 人者為中小企業。 The Importance of Small Business in the U.S. Economy  Job creation  Innovation  Contributions to big business  Suppliers of specialized services and raw materials  Sellers of larger firms’ products

© 2007 Prentice Hall, Inc. All rights reserved.3–6 Popular Areas of Small-Business Enterprise Major small-business industry groups:  Services  Retailing  Construction  Wholesaling  Finance and insurance  Manufacturing and transportation

© 2007 Prentice Hall, Inc. All rights reserved.3–7 FIGURE 3.2Small Business by Industry

© 2007 Prentice Hall, Inc. All rights reserved.3–8 Entrepreneurship Entrepreneurship 企業家精神  The process of seeking businesses opportunities under conditions of risk Entrepreneur 企業家  One who accepts the risks and opportunities of creating, operating and growing a new business Small Business Owner  Does not always have growth of the business as a primary entrepreneurial goal

© 2007 Prentice Hall, Inc. All rights reserved.3–9 Entrepreneurial Characteristics Successful Entrepreneurs:  are resourceful.  are concerned for good customer relations.  desire to be their own boss.  can deal with uncertainty and risk.  are open-minded.  rely on networks, business plans, and consensus.  have different views on how to succeed, to automate a business, and when to rely on experience or business acumen 銳敏.

© 2007 Prentice Hall, Inc. All rights reserved.3–10 Starting and Operating a New Business Crafting a Business Plan  Conveys a description of the business strategy for the new venture and how it will be implemented  A business plan should address:  The entrepreneur’s goals and objectives  The strategies that will be used to obtain them  The implementation of the chosen strategies Preparing a Business Plan  Setting goals and objectives  Sales forecasting  Financial planning

© 2007 Prentice Hall, Inc. All rights reserved.3–11 Starting the Small Business Buying an Existing Business  Less risk in purchasing ongoing, viable business Franchising 經銷權  Advantages  Proven business opportunity for franchisee  Access to management expertise of franchisor  Disadvantages  Start-up costs for franchise purchase  Ongoing payments to the franchisor  Management rules and restrictions on the franchisee

© 2007 Prentice Hall, Inc. All rights reserved.3–12 Starting the Small Business (cont’d) Questions to Be Answered:  Who and where are my customers?  How much will those customers pay for my product?  How much of my product can I expect to sell?  Who are my competitors?  Why will customers buy my product rather than the product of my competitors?

© 2007 Prentice Hall, Inc. All rights reserved.3–13 Financing the Small Business Personal Resources Loans from Family and Friends Bank Loans Venture Capital Companies Small-Business Investment Companies (SBICs) Minority Enterprise Small-Business Investment Companies (MESBICs) SBA Financial Programs  Guaranteed loans and immediate loans programs  Management advice (SCORE and SBDCs)

© 2007 Prentice Hall, Inc. All rights reserved.3–14 Trends in Small-Business Startups Emergence of E-commerce Crossovers from Big Business Opportunities for Minorities & Women GlobalOpportunities Better Survival Rates

© 2007 Prentice Hall, Inc. All rights reserved.3–15 Reasons for Failure and Success Failure  Poor management  Neglect  Weak control systems  Insufficient capital Success  Hard work, drive 魄力幹勁, and dedication 奉獻  Market demand  Managerial competence  Luck!!!

© 2007 Prentice Hall, Inc. All rights reserved.3–16 Noncorporate Business Ownership Forms of Legal Ownership  Sole proprietorship: Owned and operated by one person  Partnership:  Partnership: Sole proprietorship multiplied by the number of partner-owners  Corporation Choice of Ownership Form  Based on the entrepreneur’s needs/desires for control, ownership participation, financing sources, and appropriateness of the chosen form for the industry in which the firm will compete

© 2007 Prentice Hall, Inc. All rights reserved.3–17 Sole Proprietorships Advantages:  Freedom  Simple to form  Low start-up costs  Tax benefits  Formation of cooperatives Disadvantages:  Unlimited liability:  Unlimited liability: Owners are responsible for all debts of a business  Limited resources  Limited fundraising capability  Lack of continuity

© 2007 Prentice Hall, Inc. All rights reserved.3–18 Partnerships Advantages:  More talent and money  More fundraising capability  Relatively easy to form  Limited liability for limited partners  Tax benefits Disadvantages:  Unlimited liability for general partner  Disagreements among partners  Lack of continuity

© 2007 Prentice Hall, Inc. All rights reserved.3–19 Alternatives to General Partnerships Limited Partnership  Allows for limited partners who invest money but are liable for debts only to the extent of their investments  Must have at least one general (or active) partner, who is usually the person who runs the business and is responsible for its survival and growth Master Limited Partnership  Organization sells shares (partnership interests) to investors on public exchange. Investors are paid back from profits  The master partner retains at least 50 percent ownership and runs the business, while minority partners have no management voice

© 2007 Prentice Hall, Inc. All rights reserved.3–20 Cooperatives Combine the freedom of sole proprietorships with the financial power of corporations Groups of sole proprietorships or partnerships agree to work together for their common benefit

© 2007 Prentice Hall, Inc. All rights reserved.3–21 Corporations Corporation  “An artificial being, invisible, intangible, and existing only in contemplation of the law” Corporations May:  Sue and be sued  Buy, hold, and sell property  Make and sell products  Commit crimes and be tried and punished for them

© 2007 Prentice Hall, Inc. All rights reserved.3–22 Corporations Advantages:  Limited liability:  Limited liability: The owners’ responsibility for the debts of a business is limited to their investment in a business  Continuity  Stronger fundraising capability Disadvantages:  Double taxation of dividends  Fluid control  Complicated and expensive to form

© 2007 Prentice Hall, Inc. All rights reserved.3–23 Types of Corporations Closely Held (Private) Corporation Publicly Held (Public) Corporation Subchapter S Corporation Limited Liability Corporation (LLC) Professional Corporation Multinational (Transnational) Corporation

© 2007 Prentice Hall, Inc. All rights reserved.3–24 Managing a Corporation Corporate Governance  The roles of shareholders, directors, and other managers in corporate decision making and accountability  Corporate governance is established by the firm’s bylaws and involves three bodies:  Stockholders (shareholders): Investors who buy ownership shares in the form of stock  The board of directors: Group elected by stockholders to oversee corporate management  Corporate officers: Top managers hired by the board to run the corporation

© 2007 Prentice Hall, Inc. All rights reserved.3–25 Stockholders: Owners of Corporations Stock: A share of ownership in a corporation Dividends: Profits distributed among stockholders

© 2007 Prentice Hall, Inc. All rights reserved.3–26 Special Issues in Corporate Ownership Joint Ventures and Strategic Alliances:  Strategic alliance: Two or more organizations collaborate on a project for mutual gain  Joint venture: Partners share ownership of a new enterprise Employee Stock Ownership Plans  Allows employees to own a share of the corporation through trusts established on their behalf Institutional Investors  Control enormous resources and can buy huge blocks of stock

© 2007 Prentice Hall, Inc. All rights reserved.3–27 Special Issues in Corporate Ownership (cont’d) Mergers, Acquisitions, Divestitures, and Spin- Offs:  Merger: Two firms combine to create a new company  Acquisition: One firm buys another outright  Divestiture: Strategy whereby a firm sells one or more of its business units  Spin-off: A firm sells part of itself to raise capital

© 2007 Prentice Hall, Inc. All rights reserved.3–28 K E Y T E R M S acquisition board of directors business plan chief executive officer (CEO) closely held (or private) corporation cooperative corporate governance corporationdivestiture double taxation employee stock ownership plan (ESOP) entrepreneurentrepreneurshipfranchise general (or active) partner general partnership institutional investor joint venture limited liability limited liability corporation (LLC) limited partner limited partnership master limited partnership merger multinational (or transnational) corporation

© 2007 Prentice Hall, Inc. All rights reserved.3–29 K E Y T E R M S (cont’d) officers professional corporation publicly held (or public) corporation S corporation small business Small Business Administration (SBA) Small Business Development Center (SBDC) small-business investment company (SBIC) sole proprietorship spin-off stockholder (or shareholder) strategic alliance tender offer unlimited liability venture capital company