1. Small Business and the Entrepreneur © 2014 Pearson Education, Inc.5-1 chapter 5 Better Business 3rd Edition Solomon (Contributing Editor) · Poatsy · Martin

2. Small Business A small business: - Is independently owned and operated - Is not a dominant force in its field - In general, has fewer than 500 employees -Has an average of $7.5 million annual revenue (in retail and service industries) © 2014 Pearson Education, Inc. 5-2 Did you know? Approximately 70% fail within first year –Why? Over 99% of all businesses in US are considered small Can be operated on a Full or Part-time basis. Small businesses offer unique advantages over larger businesses. –Such as?

3. Small Business: The Pros and Cons © 2011 Pearson Education, Inc. 3 Disadvantages and Threats: Higher Risk of Failure Lack of Knowledge and Experience Competition Too Little Money High Stress Level Bigger Regulatory Burden Higher Health Insurance Costs Advantages and Opportunities: Market Niches Fosters Innovation Serves the needs of larger companies Personal Customer Service & Employee Relationships Lower Overhead Cost Technology Helps our Economy (employment, competition)

4. Why Do Small Businesses Fail? Accumulating too much debt Inadequate management Poor planning Unanticipated personal sacrifices High Stress Level © 2014 Pearson Education, Inc. 5-4

5. Small Business and the Economy In the U.S., small businesses Generate 65% of net new jobs Create more than ½ of U.S. GDP Export about one third of all U.S. exports of goods and services Represents the second largest economy in the world © 2014 Pearson Education, Inc. 5-5

6. Small Business Contributions Foster innovation Help bigger companies: - Supply products and services to the larger companies that they do not or cannot supply Help consumers: -Supply products and services that large companies cannot or will not provide -Provides competition to bigger companies, which reflects is more product choices and lower prices © 2014 Pearson Education, Inc. 5-6

7. Small Business and the Workforce Create over 65% of new jobs each year Employ many who do not fit into a traditional corporate structure Provide opportunities for women and minorities © 2014 Pearson Education, Inc. 5-7

8. The Impact of Technology on Small Business The personal computer, mobile devices, and the Internet have: - Created entirely new business opportunities - Made starting a new business easier Impact of social media © 2014 Pearson Education, Inc. 5-8

9. Why Go Into Business? Reasons to Start a Small Business © 2014 Pearson Education, Inc. 5-9

10. Entrepreneur Basics What is an entrepreneur? Traits of successful entrepreneurs: - Innovative - Risk takers - Motivated to succeed - Flexible and self-directed - Work well with others - Good leadership skills -“System thinkers” © 2014 Pearson Education, Inc. 5-10

11. Types of Entrepreneurs Lifestyle entrepreneurs Micropreneurs Home-based entrepreneurs Internet entrepreneurs Growth entrepreneurs Intrapreneurs Social entrepreneurs and social intrapreneurs Entrepreneurial teams © 2014 Pearson Education, Inc. 5-11

12. Going into Business: Developing a Business Plan © 2014 Pearson Education, Inc. 5-12  Recognize Opportunity New Business, Existing Business, Franchise  Business Plan “Blue print for business,” a carefully constructed guide for the person starting the business SBA, SBDC, Score Write on a 4 th Grade Level  Seek Capital $100,000 avg “seed” money Lenders/Investors –What do they look at? Family or Friends  File and Register Business  Operate and Manage

13. Where Do Small Business Owners Go for Help? © 2014 Pearson Education, Inc. 5-13

14. Financing Considerations Cash Credit cards Banks and small business loans Grants Angle investors Venture capitalists Small Business Investment Company (SBIC) program © 2014 Pearson Education, Inc. 5-14

15. Starting a Business: Several Opportunities © 2011 Pearson Education, Inc.15  New Business – starting a brand-new business from scratch  Existing Business – buying an existing business  Franchises – the right to operate an individually owned business as though it was a part of a chain or outlet of stores

16. Starting a Brand New Business © 2011 Pearson Education, Inc.16 ADVANTAGES Control you own destiny Personal satisfaction – It’s your business, you started it Unlimited income potential True independence DISADVANTAGES High risk of failure Long hours and hard work High stress levels Complete responsibility

17. Buying an Existing Business Pros and Cons Pros Ease of start-up Existing customer base Financing opportunities Cons Purchase price may be high Inheriting the previous owner’s mistakes Unknowns in transition Alienated customers? Employees? © 2014 Pearson Education, Inc. 5-17 ___Pros Ease of start-up Existing customer base Financing opportunities Pros Ease of start-up Existing customer base Financing opportunities

18. Due Diligence Research and analysis of the business to uncover any hidden problems associated with it © 2014 Pearson Education, Inc. 5-15

19. Franchise Basics © 2014 Pearson Education, Inc. 5-19  Franchise A license to operate an individually owned business as though it were part of a chain of outlets or stores  Franchising The actual granting of a franchise  Franchisor An individual or organization granting a franchise  Franchisee A person or organization purchasing a franchise

20. Franchising Pros and Cons © 2014 Pearson Education, Inc. 5-20 –Royalty Fee - % of Franchise Sales or Profits –Franchise Fee – Fee paid to the Franchisor by the Franchisee

21. Questions to Ask Before Buying © 2014 Pearson Education, Inc. 5-21

22. © 2014 Pearson Education, Inc. 5-22