1. What You Need to Know about Forms of Business Ownership

2. Starting your own business
Yes, decide what type you want to be and why…
Sole proprietorship – just get started!
Partnership – pair up with a friend
Corporation - function separate from owners

3. Sole Proprietorship Advantages Disadvantages Ease of start/end
Be your own boss
Pride of ownership
Leave legacy
Retain profit
No special taxes
Disadvantages
Unlimited liability
Limited financial resources
Difficulty in managment
Time commitment
Few fringe benefits
Limited growth
Limited life span

4. Types of Partnerships
General
Limited
Master Limited
Limited Liability

5. Partnership Advantages Disadvantages More financial resources
Shared mgmt.
Longer survival
No Special Taxes
Disadvantages
Unlimited liability
Division of profits
Disagreements among partners
Difficult to terminate

6. Types of Corporations Regular “C” S Corporation
Limited Liability Companies

7. Corporations Private- Not Traded on Any Stock Exchange
Public- Shares Are Traded on 1 or More Stock Exchanges
Non-Profit- Performs Public Service, Has Special Tax Considerations To Encourage Formation

8. Corporation Advantages Disadvantages More money for investment
Limited liability
Separation of ownership/mgmt.
Ease of ownership change
Perpetual life
Size
Disadvantages
Initial cost
Paperwork
Two tax returns
Termination difficult
Stockholder & Board Conflict
Double taxation

9. How Owners Affect Management

10. S Corporations No more than 75 shareholders Individual or Estates
U.S. citizens or residents
1 class of stock
<25% of income can be passive
Slower-growing companies
Benefits change with new tax rules

11. Limited Liability Companies
Disadvantages
No Stock
Limited Life Span
Fewer Incentives
Taxes
Paperwork
Advantages
Limited Liability
Tax Choice
Flexible Ownership Rules
Flexible Profit & Loss Distribution
Operating Flexibility

12. Why Mergers Don’t Work Companies Overpay to Acquire Another Firm
Acquiring Company Overestimates Cost Savings and Synergies
After Merger, Managers Disagree About Integrating Operations
After Merger, Cost Cutting Obsession Hurts Business, Costing Top Employees & Customers

13. GM’s Ownership In:
Source: USA TODAY

14. Types of Mergers
Horizontal
Vertical
Conglomerate

15. Individual + Loan = Purchase of Company
Leveraged Buyout
Individual Loan = Purchase of Company
Purchase Loan
Company = Collateral

16. Franchise System
Franchise Agreement
Franchisor
Franchisee

17. Branded Product/Service
Franchise Contract
Franchisor, Inc.
Branded Product/Service
Performance
Monitoring
$$$$$
Franchisee

18. Franchisor Provides Training/Support Assigns Territory
Business Expansion Using O.P.M.
Assigns Territory
May Provide Financial Aid/Advice
Offers Merchandise/ Supplies at Competitive Price

19. Franchisee Pays Up-Front Costs Makes Monthly Payment to Franchisor
Runs Business by Franchisor’s Rules/Procedures
Buys Materials from Franchisor/ Approved Supplier

20. Fastest Growing Franchises
Company
Since
Type
# Stores
Curves
1995
Women’s Only Fitness
3,778
Subway
1974
Submarine Sandwich
14,800
7-Eleven
1964
24-Hr. Convenience
3,761
Taco Bell
Mexican Fast Food
5,417
Jani-King
Commercial Cleaning
7,843
Source: Entrepreneur, 2003

21. Franchises Advantages Disadvantages High start-up costs
Management & marketing assistance
Personal ownership
Recognized name
Financial advice & assistance
Lower failure rate
Disadvantages
High start-up costs
Shared Profit
Management regulation
Coattail effects
Restrictions on selling
Fraudulent franchisors

22. Cost of Fast-Food Franchise

23. How to Avoid a Franchise Lemon
Research officers & their business experience
Get summary of any bankruptcy & litigation
Estimate all costs to set up franchise
Review franchise contract & three most recent financial statements

24. Benefits of a Home-Based Franchise.
Flexible work hours
Quality lifestyle
Doing the work of your choice
Opportunity to expand using technology
Self-motivation

25. Franchising & E-Commerce
Technology- Faster Customer Service
Access to International Markets

26. Cooperatives Farm Cooperative Owned & Controlled by People Who Use It
Pool of Resources
Economic Power

27. Small Business Revival
Shift to Services
CAD/CAM Lessening Advantages of Big Manufacturing
Maturation of Baby Boomers
More Women in Workforce
1970
1980
1990
2000

28. Entrepreneurship Definition
Characteristics of Successful Entrepreneurs
Intrapreneur
Micropreneur vs. Home-Based
Corporation
Entrepreneur

29. Small Business- Advantages
Personalized Service/ Personal Contact
Flexibility
Lower Costs
Innovation Opportunities

30. Small Business-Disadvantages
Limited Experience
Long Hours
Insufficient Capital
High Failure Rate

31. Why People Start Their Own Businesses
Source: BFIB/VISA Card Primer

32. Reasons Women Leave Jobs in Big Companies to Start Business
Source: FSB, March 2001

33. Self- Perception of Small Business Owners
Source: USA Today, 5/20/03

34. Who Starts New Businesses?
AGE AT START-UP % % % % %

35. Entrepreneurial Attributes
Self-Directed & Self-Disciplined
Self-Nurturing
Action-Oriented
Highly Energetic
Tolerant of Uncertainty

36. Hours per Week Entrepreneurs Worked 1st Year

37. Reasons for Growth of Home-Based Businesses
Technology
Downsizing
Attitudes
Tax Advantages

38. Most Common Types of Home-Based Businesses
Source: Independent Insurance Agents of America

39. Home Office Owners Challenges Focus New Customers Find Opportunity
Time Management
Work vs. Family
City Ordinances
Risk
Focus
Find Opportunity
Results vs. Routine
Profit vs. Paycheck
New Ideas
Long Term vs. Short Term

40. Government Efforts Enterprise Zones Incubators
Immigration Act of Investor Visa
Enterprise Zones
Incubators

41. What Is Small Business?
Independent
Not Dominant
< 500 Employees

42. U.S. Small Businesses 20 Million Full/Part-Time Businesses
75% of New Jobs
45% of Gross Domestic Product
Jobs
80% of Americans = 1st Job in Small Business
75% of New Jobs = Small Business
Women-Owned Growing Rapidly

43. Small Business Success
Learn from Others
Get Experience
Take Over Successful Firm

44. Successful Business Management Requirements
Business Plan
Adequate Funding
Lenders/Investors
“Angels”
Venture Capitalists
Professional Advice/Help
Know Your Customer
Manage Human Resources
Keep Good Records

45. Small Business Strategies
Examine Marketing & ID Areas for Growth
Profile Best Customers & Market to Similar Prospects
Invest in Sales Training & Technology
Refresh Business Perspective With Outside Views
Streamline Business & Eliminate Waste

46. Saving a Business in Trouble
React/Not Overreact
Understand Financial Situation
Find Professional Help
Develop “Recovery Plan”
Be Visible Confident Leader
Remind Employees of Stake in Business
Don’t Get Stung By Killer “Bankruptcy”

47. Capital Sources of Successful Entrepreneurs
SOURCE: FSB, March 2001

48. Reasons for a Banker to Say “No”
I don’t know enough about you or your business.
You haven’t clearly stated why you need the money.
Your numbers don’t support the loan request.
Your collateral is lacking.
Your business does not support the loan on its own merits.

49. Small Business Collaborators
Small Business Administration (SBA)
Microloan program
SBICs
SBDCs
Service Corps of Retired Executives (SCORE)
Active Corps of Executives (ACE)

50. Ways to Improve Banking Relationships
Provide Bank With Business Plan, Brochures, Business Cards, etc.
Describe Business, Financial Situation, Plans
Ask About Scope of Bank Services
Express Interest In Banker’s Background- Family, Hobbies, etc.
Follow Up With Phone Calls, Visits
Source: St. Louis Business Monthly, August 2002

51. Small Business & International Prospects
Positives
World Market
Absorb Excess Inventory
Soften U.S. Downturns
Extend Product Life
Negatives
Financing Difficult
How to Get Started?
Lack of Cultural Understanding
Paperwork

52. International Small Business
Advantages
Deal With Individuals
Faster Shipping
Variety of Suppliers
Professional Service
Information
Dept. of Commerce-
SBA- International-