1. Small Business Management
Entrepreneurship and
Small Business Management
C H A P T E R 6
6-1 Becoming an Entrepreneur
6-2 Small Business Basics
6-3 Starting a Small Business

2. 6-1 Becoming an Entrepreneur
Goals
Identify characteristics of successful entrepreneurs
Recognize the importance of entrepreneurship in the economy
Describes opportunities and risks

3. Characteristics of Entrepreneurs
Entrepreneur – someone who takes a risk in starting a business to earn a profit
Being your own boss
Developing a good initial plan
Special skills and abilities and coming up with innovative ideas
Entrepreneurship – the process of starting, organizing, managing, and assuming the responsibility for a business

4. What Does it Take?
Not all business owners and managers are entrepreneurs.
Entrepreneurs have unique skills and personal characteristics.

5. Entrepreneurs Are: Persistent Inquisitive Energetic Goal-oriented
Independent
Self-confident
Creative
Reliable
Competitive

6. Entrepreneurs Have: Problem-solving skills Tolerance for ambiguity
Strong integrity
Personal initiative
Ability to secure resources
Capability to learn from failure
Willingness to work hard

7. Checkpoint #1
What personal characteristic are common to most successful entrepreneurs?
persistence, inquisitiveness, self-confidence, creativity, and so forth.

8. Entrepreneurship and the Economy
Employment
Small businesses are responsible for most new employment.
Financing
Most new businesses start on $10,000 or less.
75% of startup capital comes from owner savings, bank loans, credit card debt.
Venture Capital – money provided by large investors to finance new products and new businesses that have a goods chance to be very profitable.

9. Entrepreneurship and the Economy
Productivity
New and small businesses produce a large volume of goods and services fro the economy.
Businesses with just a single owner and no staff account for more than $770 billion in sales annually
Responsible for more than half of the U.S. GDP each year.

10. Employment Growth by Business Size, 1990–2005

11. Checkpoint #2
What are the sources of financing that entrepreneurs use for their new businesses?
Personal savings
Friends and family
Venture capital
Bank loans

12. Opportunities and Risks
Before deciding to start a business, you need to think about the opportunities and risks.
New Business Opportunities
Innovation – an invention or creation that is brand new
Improvement – a designed change that increases the usefulness of a product, service, or process

13. Opportunities and Risks
Recognizing Risks
The primary reasons that businesses started by entrepreneurs close are:
Lack of adequate capital
Low sales
Higher than expected expenses
Competitive pressure
An owner unprepared to manage a growing business
Operations requiring more time than the owner is willing to commit

14. Checkpoint #3 Where do entrepreneurship opportunities begin?
Opportunities begin with innovations (ideas about new products and services) or improvements (ideas for changes to existing products, services, or processes).

15. 6-2 Small Business Basics
Goals
Identify important characteristics of a small business
Recognize the competitive advantages of small businesses
Identify problems faced by many small busineses

16. Small Business Ownership
Small Business – an independent business with fewer than 500 employees.
99.9% of roughly 26 million U.S. Businesses are small businesses
Description of a Small Business:
The owner is usually the manager
It operates in one or very few locations
It typically serves a small market
It is not dominant in its field

17. Small Business Ownership
Small Business Employment
Responsible for 60-80% of all new jobs
Large number of small businesses
Professional and Technical (Construction Companies)
Ownership Diversity
Women own more than 1/4th of all small businesses
More than 17% have African-American, Asian-American, or Hispanic ownership
14% of owners are under 35 years-old

18. Small Business Ownership
Ownership Diversity
64% have finished some college work
Half are home based businesses
Average $5,000 or less to start up the business (Part-Time)

20. Checkpoint #4
Beyond the formal definition of a small business, what four points can be used to describe a small business?
The owner is usually the manager
It operates in one or very few locations
It typically serves a small market
It is not dominant in its field

21. Small Business Advantages
Meeting customer needs
Serve customers where the number of products and services needed is small or the requirements are too specialized for large businesses
Get direct information from their customers
Providing Unique Services
Spend time determining needs and discussing alternatives
Unique needs, more individual attention, and willing to pay more.

22. Checkpoint #5
How can small businesses compete successfully with larger businesses?
Smaller businesses are able to provide more personalized products and services to their customers.
They are able to provide products and services where smaller orders and projects are required and tend to fill unique customer needs, which larger companies do not provide.

23. Common Small Business Problems
Reasons for failure
Not keeping adequate records
Not having enough start-up money
Lack of management experience
Lack of experience with the type of business
Not controlling operating expenses
Poor location for the business
Failure to manage credit offered to customers

24. Common Small Business Problems
Small Business Assistance
Small businesses can get help from a number of sources:
Universities and colleges
Local Group of business people
Small Business Administration
A government agency that helps small business owners develop a business plans and obtain financing and other support for their companies.

25. Checkpoint #6 List common reasons for small business failure.
Not keeping adequate records
Insufficient start-up money
Lack of management experience
Lack of experience with the type of business
Not controlling operating expenses
Poor location
Failure to manage credit

26. 6-3 Starting a Small Business
Goals
Recognize important factors to be considered when starting a business
Describe elements of a business plan
Identify types and sources of financing a small business

27. The Business Decision An Idea Plus Experience Right place right time
Business ideas come from many sources
Hobbies, interests, business experiences, books, Magazines
Several years of training in a range of business operations will prepare you for the role of owner.
Right place right time
If the business is not easy to find or requires a great deal of travel time, many potential customers will stay away.

28. The Business Decision Team Approach Preparation and Research
Even small businesses need a few full – or part –time employees to grow or cover extended hours.
Choosing the team members become one of the most important initial business decisions.
Preparation and Research
Includes having enough information to make good decisions about the business.
Information is needed on customers, competitors, important operations, government regulations, and many more

29. Checkpoint #7
Why is it important to use a team approach when starting a new business?
A team approach allows employees to feel valued and motivated to take personal responsibility for the benefit of the business.
Owners cannot expect to be able to do everything alone. Building a team will allow the business to increase productivity and, ultimately, profits.

30. Developing a Business Plan
What is a business plan?
A written description of the business idea and how it will be carried out, including all major business activities.
Key Features:
General description of the company
The credentials of the owners
Description of the product or service
Analysis of the market
Financial plan

31. Elements of a Business Plan
Description of the Business
The business idea
Major products and services
Ownership structure
Strengths/weaknesses
Long- and short-term goals

32. Elements of a Business Plan
Description of Competition
Characteristics of the industry
Condition of the economy
Strengths and weaknesses of major competitors
Customer Analysis
Description of customers
Location, number, and resources of customers
Sales forecasts

33. Elements of a Business Plan
Operations Plan
Organization of the company
Description of major operations
Analysis of resources needed
Human resource plans
Marketing Plan
Description of major marketing activities
Description of resources needed
Schedule of marketing activities

34. Elements of a Business Plan
Financial Plans
Start-up costs
Short- and long-term financial needs
Sources of financing
Budgets and financial statements

35. Steps in Developing the Business Plan
Gather and review information
Develop the strategic alternatives
Write the plan
Ask an expert to review the plan

36. Checkpoint #8
What are the “strategic alternatives” in a business plan?
Strategic alternatives are alternative plans for production, staffing, financing, and so on.
Even the best business plan cannot predict every possible circumstance.
An alternate plan allows a business to be prepared for the unforeseeable.

37. Financing The Small Business
Types of financing
Start-up financing
Short-term financing
Long-term financing
Sources of financing
Owner-supplied funds
Borrowed funds

38. Checkpoint #9
In addition to owner-supplied capital, what are several other sources of financing for a small business?
Borrowed money may come from banks, finance companies, or other individuals, such as friends and family.
Some suppliers may also be willing to extend credit.