FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
part CHAPTER 5 Small Business, Entrepreneurship, and Franchising 2 CHAPTER 4 Options for Organizing Business FHF 5-2
[] FHF Entrepreneurship 5-3 The process of creating and managing a business to achieve desired objectives
FHF What is Small Business? “Smallness” is relative Small business is any independently owned and operated business, not dominant in its competitive area Employs less than 500 people (in USA) 5-4
FHF Impact of Small Businesses 5-5
FHF Small Businesses Represent 64% of new net jobs, annually, created in the last 15 years 99.7% of all businesses employ fewer than 500 people 89% of businesses employ fewer than 19 people 5-6
FHF Small Business Innovation 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 … and much more 5-7
FHF Popular Industries for Small Business Especially attractive industries to entrepreneurs: Retailing and wholesaling Services Manufacturing High technology 5-9
FHF Retailing and Wholesaling Selling directly to consumers Music stores Sporting-goods shops Dry cleaners Boutiques Drugstores Restaurants Hardware stores 5-10
FHF Services and Manufacturing Services Service sector is 80% of U.S. jobs Manufacturing Small manufacturers excel at customization 5-11
FHF High Technology Businesses that depend heavily on advanced scientific and engineering knowledge. 40% of high-tech jobs are with small businesses 5-12
FHF Small Business Ownership 5-13 AdvantagesDisadvantages IndependenceHigh stress level CostsHigh failure rate 50% of all new businesses fail within the first 5 years FlexibilityUndercapitalization Lack of funds to operate normally FocusManagerial inexperience or incompetence ReputationInability to cope with growth
FHF Starting a Business Start with a concept or general idea Create a business plan Devise a strategy to guide planning & development Make decisions Form of ownership Financing Acquire existing business or start new business? Buy a franchise 5-14
FHF The Business Plan 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 5-15
FHF Forms of Business Ownership Sole Proprietorship Partnership Corporation 5-16
FHF Financial Resources Provide your own personal capital Cash money Obtain capital Financing options Loans Stocks Equity financing 5-17
[] FHF Equity Financing Selling or borrowing against the value of an asset such as an (automobile, insurance policy, savings account) to obtain funds to operate a business 5-18
[] FHF Venture Capitalists 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 5-19
[] FHF Debt Financing Borrowing financial resources typically from a bank or lending institution– often collateral is needed 5-20
FHF Starting from Scratch vs. Buying an Existing Business Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business Existing businesses have the advantage of a built-in network of customers, suppliers and distributors Reduces guesswork Involves taking on any problems the business already had 5-22
FHF FranchiseFranchise 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 5-23
FHF FranchisesFranchises 5-24 AdvantagesDisadvantages Training & supportFees and profit sharing Brand name appealStandardized operations National advertisingRestrictions on purchasing Financial assistanceLimited product line Proven productsPossible market saturation Greater chance for successLess freedom in decisions