1. S MALL B USINESS, E NTREPRENEURSHIP, AND F RANCHISES C HAPTER -05 Dr. Gehan Shanmuganathan, (DBA) 1

2. F RANCHISING FEEDS GROWTH OF F IVE G UYS B URGERS AND F RIES …. 2

3. Offer competitively priced generously sized meals in a family-friendly atmosphere Jerry and Janie Murrell started one outlet in Arlington Virginia in 1986 In year 2002, they owned 300 franchised restaurants in and around metropolitan DC area Today they have more than 600 franchised restaurants in North America 3

4. L EARNING O BJECTIVES 1. Define what a small business is and recognize the fields in which small businesses are concentrated. 2. Identify the people who start small businesses and the reasons why some succeed and many fail. 3. Assess the contributions of small businesses to our economy. 4. Judge the advantages and disadvantages of operating a small business.

5. L EARNING O BJECTIVES ( CONT ’ D ) 5. Explain how the Small Business Administration helps small businesses. 6. Appraise the concept and types of franchising. 7. Analyze the growth of franchising and the advantages and disadvantages of franchising.

6. S MALL B USINESS : A P ROFILE 6

7. A business that is independently owned and operated for profit and is not dominant in its field SBA “smallness” guidelines-number of employees and size of the turnover (in US 99.7% of all business considered small) Industry groupSize standard Manufacturing, mining500 employees Whole sales trade100 employees Agriculture$ 750,000 Retail trade$ 7 Million General and heavy construction $ 33.5 Million

8. E STABLISHING A BUSINESS AROUND THE WORLD ….. 8 Country# procedures Time/ DaysCost (US$)Min. Capital % Australia224020 Belgium756263375.1 Canada231270 Denmark44052.3 France105366332.1 Germany9451341103.8 Greece16458115145.3 Ireland31224730 Italy923456549.6 Japan1131351871.3

9. S MALL - BUSINESS SECTOR 9

10. In US, easy process to incorporate ($250 and four days- name registration, tax ID, unemployment and worker’s compensation insurance). Japan $3500, 31 days and 11 different procedures There are about 29.6 million businesses in the US. Only over 17000 of these employ more than 500 workers. During last decade small businesses in the US increased by 49% Two- third of new business survive at least two years 44 % survive at least four years 31 % survive at least seven years 10

11. I NDUSTRIES THAT A TTRACT S MALL B USINESSES Attractive small-business industry characteristics Low investments Some special skills Knowledge Industry categories where small businesses tend to cluster Distribution industries (33%) - retailing, wholesaling, communication, and transportation Service industries (48%) – dental care, watch, shoe Production industries (19%)- construction, mining, manufacturing

12. T HE P EOPLE IN S MALL B USINESSES : T HE E NTREPRENEURS 12

13. T HE P EOPLE IN S MALL B USINESSES : T HE E NTREPRENEURS The entrepreneurial spirit is alive in the US Study reveals that US population is quite entrepreneurial when compared to other countries More than 70% of Americans would prefer being an entrepreneur to work for someone else This compares with 46% of adults in Western Europe and 58% of adults in Canada Another study reveals that United States was in the top third in entrepreneurial activities and was a leader when compared with Japan, Canada, and Western Europe 13

14. C HARACTERISTICS OF E NTREPRENEURS Why people go into business for themselves The “entrepreneurial spirit” (desire to create new business) The desire for independence The desire to determine one’s own destiny The willingness to find and accept a challenge and risk Family background Age “Had enough” of working for someone else High-tech opportunities, especially for teens Losing a job and deciding to start a business An idea for a new product

15. W OMEN AS SMALL - BUSINESS OWNERS Women are 51% of the total US population and according to the SBA, they owned at least 50% of all small business in 2008 Already own 66% of the home-based businesses in the country 9.1 million women-owned business in the United States provide almost 27.5 million jobs and generate $ 3.6 trillion in sales They have proven that they are successful: more than 40% have been in business for 12 years or more Generally women owned businesses are financially sound, credit-worthy, older, better educated, and have more managerial experience 15

16. H OW OLD IS AN AVERAGE ENTREPRENEUR ? 16

17. W HY S OME E NTREPRENEURS AND S MALL B USINESSES F AIL Planning Lack of capital and cash-flow problems Lack of management skills Overexpansion

18. US BUSINESS START - UPS, C LOSURES, AND B ANKRUPTCIES IN 2005- 2009 18 YearNewClosureBankruptcies 2009N/A 60840 2008627200595600 (94%)43546 (6%) 2007663100571300 (86%)28322 (4%) 2006670058599333 (89%)19695 (2%) 2005644122565745 (87%)39201 (6%)

19. T HE I MPORTANCE OF S MALL B USINESSES IN O UR E CONOMY 19

20. T HE I MPORTANCE OF S MALL B USINESSES IN O UR E CONOMY Providing technical innovation Innovation and invention are part of our economy Search for new ways to do “more with less” Small firms employ 40% of all high-tech workers such as engineers, and computer specialists Small firms produce thirteen to fourteen times more patents per employee than large patenting firms

21. T HE I MPORTANCE OF S MALL B USINESS IN O UR E CONOMY ( CONT ’ D ) Providing employment Small businesses create more new businesses They provide 67% of workers with their first jobs and training Providing competition Challenge larger companies with high customer service A combined competition makes a significant impact to large organizations Filling needs of society and other businesses Small firms provide variety of goods and services to each other and to much larger firms

22. T HE P ROS AND C ONS OF S MALLNESS 22

23. T HE P RO AND C ONS OF S MALLNESS ADVANTAGES Personal relationship with customers Ability to adapt to change Simplified record keeping Independence DISADVANTAGES Risk of failure Limited potential Limited ability to raise capital

24. D EVELOPING A B USINESS P LAN 24

25. D EVELOPING A B USINESS P LAN Business plan A carefully constructed guide for the person starting a business Three basic purposes of a business plan Communication Management Planning Accuracy and realistic expectations are crucial

26. O VERALL PICTURE OF A BUSINESS PLAN What exactly is the nature and mission of the new venture? Why is this new enterprise a good idea? What are the businessperson’s goals? How much will the new venture cost? 26

27. C OMPONENTS OF A BUSINESS PLAN 1. Introduction 2. Executive summary 3. Benefits to the community 4. Company and industry 5. Management team 6. Manufacturing and operations plan 7. Labor force 8. Marketing plan 9. Financial plan 10. Exit strategy- going public (who will take over) 11. Risk and assumptions 12. Appendix 27

28. T HE S MALL B USINESS A DMINISTRATION 28

29. T HE S MALL B USINESS A DMINISTRATION (SBA) A government agency that assists, counsels, and protects the interests of small business in the U.S SBA management assistance Management courses and workshops Service corps of retired executives (SCORE) Help for minority-owned small business Small business institute Small business publications SBA financial assistance Regular business loans Small-business investment companies

30. F RANCHISING 30

31. F RANCHISING 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 franchising

32. T YPES OF F RANCHISES Manufacturer- passenger cars, farm products Producer – soft drinks, fast food Services- massage parlors, financial services

33. F RANCHISING ( CONT ’ D ) The growth of franchising Are franchises successful?

34. G LOBAL FRANCHISED BRANDS 34

35. I NDUSTRY TRENDS AND FRANCHISE COMPANIES Health consciousness - Subway Increasing working women- KFC, McDonald Aging populations – Ocean Medical International Cost consciousness – Wal-Mart 35

36. A DVANTAGES OF F RANCHISING TO THE FRANCHISOR Gains fast and well- controlled distribution at low cost Making the product accessible to clients Larger coverage TO THE FRANCHISEE Opportunity start business with limited capital Make use of business experience of a major player Business guidance Already established brand image

37. D ISADVANTAGES OF F RANCHISING TO THE FRANCHISOR Time to closely monitor customer service Contract disputes TO THE FRANCHISEE Greater deal of control from the franchisor Contract disputes Inability to manipulate the marketing mix

38. G LOBAL P ERSPECTIVES IN S MALL B USINESS Growing interdependence of national and international economies as trade barriers diminish Instant communications shrinks distances and expands business opportunities The Internet is the favored strategy for growth for small businesses The SBA offers counseling on how and where to market overseas Small businesses must adapt to demographic and economic changes in the world marketplace

39. Q UESTIONS …….. 39

40. W RITE FIVE KEY THINGS ( AREAS ) THAT YOU CAN CRITICALLY REMEMBER IN TODAY ’ S DISCUSSION 40

41. W HAT WE DISCUSSED …… 1. Define what a small business is and recognize the fields in which small businesses are concentrated. 2. Identify the people who start small businesses and the reasons why some succeed and many fail. 3. Assess the contributions of small businesses to our economy. 4. Judge the advantages and disadvantages of operating a small business.

42. W HAT WE DISCUSSED …… CONT … 5. Explain how the Small Business Administration helps small businesses. 6. Appraise the concept and types of franchising. 7. Analyze the growth of franchising and the advantages and disadvantages of franchising.

43. W EEKLY ASSIGNMENT - 05 What are the major components of a business plan? Why should an entrepreneur develop a business plan? Discuss with examples.