1. © Prentice Hall, 2005Business In Action 3eChapter 5 - 1 Starting and Financing a Small Business

2. © Prentice Hall, 2005Business In Action 3eChapter 5 - 2 The Small Business Independently owned and operated Not dominant in its field Relatively small annual sales Fewer than 500 employees

3. © Prentice Hall, 2005Business In Action 3eChapter 5 - 3 Roles of Small Business Provide new jobs Introduce new products Service large corporations

4. © Prentice Hall, 2005Business In Action 3eChapter 5 - 4 Roles of Small Business Inject money into the economy Take business risks Provide specialty goods and services

5. © Prentice Hall, 2005Business In Action 3eChapter 5 - 5 Types of Small Business LifestyleHigh-Growth Run by Individuals Limited Products/Services Limited Resources Limited Marketplace Run by Teams Multiple Products/Services Investment Capital Large Marketplace

6. © Prentice Hall, 2005Business In Action 3eChapter 5 - 6 The Typical Small Business Few products or services Narrow customer base Close market contact Limited resources Increased innovation

7. © Prentice Hall, 2005Business In Action 3eChapter 5 - 7 How Entrepreneurs Spend Their Time Dealing with employees Keeping records Direct selling Production Maintenance Dealing with suppliers Arranging financial matters Planning growth and change Other services

8. © Prentice Hall, 2005Business In Action 3eChapter 5 - 8 Innovation in Small Business Faster decisions Access to owners Individual expression

9. © Prentice Hall, 2005Business In Action 3eChapter 5 - 9 Factors Contributing to Small Business Growth E-commerce and the Internet Women and minorities Downsizing and outsourcing

10. © Prentice Hall, 2005Business In Action 3eChapter 5 - 10 Characteristics of Entrepreneurs Highly disciplined Like to control their destiny Listen to their intuition Relate well with others Eager to acquire new skills Learn from their mistakes

11. © Prentice Hall, 2005Business In Action 3eChapter 5 - 11 Characteristics of Entrepreneurs Stay abreast of market changes Willing to exploit new opportunities Seldom follow trends Driven by ambition Think positively Prefer risk taking over security

12. © Prentice Hall, 2005Business In Action 3eChapter 5 - 12 Develop a Business Plan Summarize the business Communicate goals Highlight plans Show customer benefits

13. © Prentice Hall, 2005Business In Action 3eChapter 5 - 13 Importance of a Business Plan Guide company operations Outline a strategy Attract lenders and investors

14. © Prentice Hall, 2005Business In Action 3eChapter 5 - 14 Starting a New Business + Control your destiny + Reach your potential + Unlimited profits + Recognition + Doing what you enjoy – Uncertainty of income – Risk of loss – Long hours & hard work – Complete responsibility – High stress levels AdvantagesDisadvantages

15. © Prentice Hall, 2005Business In Action 3eChapter 5 - 15 Buying an Existing Business + Customer base + Business systems + Product or service + Location + Financing – Alienated customers – Obsolescence – Location – Personality clashes – Outstanding receivables AdvantagesDisadvantages

16. © Prentice Hall, 2005Business In Action 3eChapter 5 - 16 The Franchise Alternative Franchisee Franchisor Types of franchises –Product –Manufacturing –Business-format

17. © Prentice Hall, 2005Business In Action 3eChapter 5 - 17 How to Evaluate a Franchise Initial franchise Periodic royalties Trademarks and names Advertising and promotion Business location

18. © Prentice Hall, 2005Business In Action 3eChapter 5 - 18 How to Evaluate a Franchise Exclusive territory Right of first refusal Equipment and supplies Agreement and termination Franchise assignment

19. © Prentice Hall, 2005Business In Action 3eChapter 5 - 19 The Pros and Cons of Franchising Advantages  Get a viable business  Name recognition  Network of support  Blueprint for success Disadvantages  No guarantee of success  High monthly royalties  Limited independence  Limited flexibility

20. © Prentice Hall, 2005Business In Action 3eChapter 5 - 20 Why New Businesses Fail Management IncompetenceManagement Incompetence Lack of ExperienceLack of Experience Insufficient FinancingInsufficient Financing Poor Business PlanningPoor Business Planning Unworkable GoalsUnworkable Goals Diminished Customer BaseDiminished Customer Base Uncontrolled GrowthUncontrolled Growth Inappropriate LocationInappropriate Location Poor System of ControlsPoor System of Controls Poor Entrepreneurial SkillsPoor Entrepreneurial Skills

21. © Prentice Hall, 2005Business In Action 3eChapter 5 - 21 Sources of Small Business Assistance SCORE Incubators The Internet

22. © Prentice Hall, 2005Business In Action 3eChapter 5 - 22 Financing A New Business Length of term Cost of capital Debt or equity

23. © Prentice Hall, 2005Business In Action 3eChapter 5 - 23 Length of Term Short-term –Maintain liquidity –Meet financial obligations Long-term –Acquire buildings and equipment –Start-up or expand operations

24. © Prentice Hall, 2005Business In Action 3eChapter 5 - 24 The Cost of Capital Risk factors Interest rates Funding vehicles

25. © Prentice Hall, 2005Business In Action 3eChapter 5 - 25 Obtaining Capital Debt financing –Secured loans –Unsecured loans Equity financing –Stock –Initial public offering

26. © Prentice Hall, 2005Business In Action 3eChapter 5 - 26 Debt Versus Equity CharacteristicDebtEquity Maturity Claim on Income Claim on Assets Influence Over Management Specific Fixed Cost Priority Little Nonspecific Discretionary Cost Residual Varies

27. © Prentice Hall, 2005Business In Action 3eChapter 5 - 27 Private Sources of Financing Personal assets Friends Corporate financing Bank loans Venture capitalists Angel investors Credit cards Small Business Administration