1. Fourth Edition Copyright ©2003 Prentice Hall, Inc. PART 1........................ Understanding the Contemporary Business Environment

2. Copyright ©2003 Prentice Hall, Inc. 4 - 2 Chapter 4 Entrepreneurship and Small Business

3. Copyright ©2003 Prentice Hall, Inc. 4 - 3 “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

4. Copyright ©2003 Prentice Hall, Inc. 4 - 4 Key Topics Small business and its importance in the economy Sole proprietorships, partnerships, and corporations Creating and managing corporations Corporate trends and issues Starting and funding a small business Pros and cons of franchising

5. Copyright ©2003 Prentice Hall, Inc. 4 - 5 What Is “Small Business”? Independently owned and managed business that does not dominate its market

6. Copyright ©2003 Prentice Hall, Inc. 4 - 6 Job Creation Innovation Importance to Big Businesses Small business plays a critical role in the U.S. economy.

7. Copyright ©2003 Prentice Hall, Inc. 4 - 7 The Labor Force Reflects the Importance of Small Business 86.09 11.002.00 0.200.10 Percentage of All U.S. Businesses Total Employees Under 20 20- 99 100- 499 500- 1000 1000 or more 25.6029.1025.50 7.10 12.70 Percentage of All U.S. Workers Total Employees Under 20 20- 99 100- 499 500- 1000 1000 or more

8. Copyright ©2003 Prentice Hall, Inc. 4 - 8 Popular Areas of Small Business Enterprise Services Retailing Construction Financial Insurance Wholesaling Transportation Manufacturing Services 37.6% Retailing 22.7% Manufacturing 5% Finance & Insurance 10% Construction 10% Transportation 5% Other 1.7% Wholesale 8%

9. Copyright ©2003 Prentice Hall, Inc. 4 - 9 Types of Business Organizations Type of Business 73% 7% 20% Sole Proprietorship PartnershipCorporations Sales Revenue 5% 6% 89%

10. Comparative Summary: Three Forms of Business Business Form LiabilityContinuityManagement Investment Sources Personal, limited Ends with death or decision of owner Personal, unrestricted Personal 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. 4 - 10

11. Copyright ©2003 Prentice Hall, Inc. 4 - 11 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

12. Copyright ©2003 Prentice Hall, Inc. 4 - 12 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

13. Copyright ©2003 Prentice Hall, Inc. 4 - 13 “When two men in business always agree, one of them is unnecessary.” William Wrigley Jr. Remember… But… An exit plan is still crucial!

14. Copyright ©2003 Prentice Hall, Inc. 4 - 14 What is a Corporation? “An artificial being, invisible, intangible, and existing only in contemplation of the law.”

15. Copyright ©2003 Prentice Hall, Inc. 4 - 15 Advantages: Limited Liability Continuity Stronger fundraising capability Corporations Disadvantages: Double Taxation Fluid control Complicated and expensive to form

16. Copyright ©2003 Prentice Hall, Inc. 4 - 16 Types of Corporations Closely Held (Private) Corporation Publicly Held (Public) Corporation S Corporation Limited Liability Corporation (LLC) Professional Corporation Multinational or Transnational Corporation

17. Copyright ©2003 Prentice Hall, Inc. 4 - 17 Stock: Share of ownership in a corporation Common Stock Preferred Stock Stockholders Owners of Corporations

18. Copyright ©2003 Prentice Hall, Inc. 4 - 18 Corporate Governance Hierarchy Officers Board of Directors Stockholders

19. Copyright ©2003 Prentice Hall, Inc. 4 - 19 Joint Ventures & Strategic Alliances Special Issues in Corporate Ownership Employee Stock Ownership Programs (ESOPS) Institutional Ownership

20. Copyright ©2003 Prentice Hall, Inc. 4 - 20 Mergers & Acquisitions (M&As) Special Issues in Corporate Ownership Divestitures & Spin-offs Mergers & Acquisitions (M&As) Divestitures & Spin-offs

21. Copyright ©2003 Prentice Hall, Inc. 4 - 21 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

22. Copyright ©2003 Prentice Hall, Inc. 4 - 22 Trends in Small Business Start-ups Emergence of E-commerce Crossovers From Big Business Opportunities for Minorities & Women GlobalOpportunities Increased Survival Rates

23. Copyright ©2003 Prentice Hall, Inc. 4 - 23 E-commerce Continues to Grow Rapidly

24. Copyright ©2003 Prentice Hall, Inc. 4 - 24 Reasons for Success and Failure Reasons for Failure Poor management Neglect Weak control systems Insufficient capital Reasons for Success Hard work, drive, dedication Market demand Strong management Luck!!! Reasons for Success Hard work, drive, dedication Market demand Strong management Luck!!!

25. Copyright ©2003 Prentice Hall, Inc. 4 - 25 Getting Started Buying an Existing Business Starting From Scratch

26. Copyright ©2003 Prentice Hall, Inc. 4 - 26 Financing the Small Business Personal resources Loans Venture capital companies Small-business investment companies Small Business Association (SBA)  Financial aid and management advice

27. Copyright ©2003 Prentice Hall, Inc. 4 - 27 FRANCHISING Advantages Proven business opportunity Access to management expertise Advantages Proven business opportunity Access to management expertise Disadvantages Start-up costs On-going payments Management rules and restrictions Disadvantages Start-up costs On-going payments Management rules and restrictions An Ownership Opportunity

28. Copyright ©2003 Prentice Hall, Inc. 4 - 28 Chapter Review Define small business and explain its importance to the U.S. economy. Describe sole proprietorships, partnerships, and corporations, and explain the advantages and disadvantages of each. Identify the different types of corporations. Describe the start-up decisions made by small businesses and the potential sources of financial aid and management advice. Identify the advantages and disadvantages of franchising.