1. Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University

2. Chapter Objectives 1. Define small and large businesses and identify the industries in which most small firms are established. 2. Discuss the economic and social contributions of small business. 3. Compare the advantages and disadvantages of small businesses. 4. Explain how franchising can provide opportunities for both franchisors and franchisees. 5. Summarize the four basic forms of business ownership and the advantages and disadvantages of each form. 5-2

3. Size of Business What makes a business small, medium or large ? Quantitative factors: the sales, the amount of capital and son on. Qualitative factors: the legal formation of business unit, the business units degree of penetration with local markets, nationwide or worldwide and so on. 5-3

4. Variables affecting the size of your business include: How easily can you set up this type of organization? How much financial liability can you afford to accept? What financial resources do you have? How many people do you empoly?

5. Most Businesses Are Small or Medium Sized Businesses What is a Small or Medium Sized Business (SME)? A firm is independently owned and operated, it is not dominant in its field It has relatively small annual sales and profits It has limited number of employees. In Turkey, more than 96 percent of total businesses are small or medium sized businesses (KOBİ) 5-5

6. Major Industries Dominated by Small Businesses 5-6

7. Contributions or Small or Medium Sized Business to the Economy Creating New Jobs Creating New Industries Attracting New Industries 5-7

8. Advantages of SME’s Easy to form Facing low costs Covering the isolated market niches Effective in owner – worker relations Effective in customer services Flexible Innovative and creative 5-8

9. Disadvantages of SME’s Weakness in competing with large businesses Limited growth or unconscious growth Limited financing Lack of Managerial Skill (Inadequate Management) 5-9

10. Business Plan Creating a Business Plan Business plan—written document that provides an orderly statement of a company’s goals, the methods by which it intends to achieve those goals, and standards by which it will measure achievements. Typically includes following components: Executive summary Introduction Marketing Financials Resumes of principles 5-10

11. Business Plan Before writing the business plan, several questions need to be answered, including: How would you explain your business idea to a friend? What purpose does your business service? How does your idea differ from those of existing business? What is the state of the industry you are entering? Who will be your customers? How will you market your goods or services? How much will you charge? How will you finance your business? Where do you want to open your business? What characteristics qualify you to run this business?

12. Three Alternatives for SME’s Start up a new company Buy an existing company Franchising

13. The Franchising Alternative The Franchising Sector Franchising—contractual agreement that specifies the methods Franchising growing rapidly Franchising is also popular overseas 5-13

14. The Franchising Alternative Franchising Agreements Franchisee: small business owner who contracts to sell the goods or service of the franchisor in exchange for some payment Franchisor: owner of the franchise. Franchisor typically provides name recognition, building plans, site selection help, accounting systems, and other services 5-14

15. The Franchising Alternative Benefits of Franchising Advantages include: Recognizable company name Business model that has proven successful Tested management program Business training Selecting location 5-15

16. The Franchising Alternative Problems of Franchising Disadvantages include: High start up cost High royality fee Coattail effect No individual freedom 5-16

17. Advantages of Large Business High budget for Research & Development (R&D) Cost efficiency because of large scale production Financial strenght Capable management Efficiency in production 5-17

18. Disadvantages of LB’s Inflexibility Gaining more political power in society. High start up cost. 5-18

19. Types of Business According to Their Fuctions Businesses are classified into three groups. These are: Manufacturing companies: they produce tangible products ( commodities products) such as electronic goods, cars, textiles and so on. Service companies; they produce intangible products through direct contact between employees and customers such as hotels, law firms and so on. Marketing and sales companies; They sell products that are produced by different firm. They are intermadiaries between manufacturer and customer. Many people see this kind of businesses as service businesses

20. Types of Business According to Equtiy Ownership Domestic Business Private Busines Business with government or public ownership Mixed Business Foreign Business Private Busines Business with government or public ownership Mixed Business

21. Legal Structure of Private Business There are four legal structure of private businesses. These are: Sole Proprietorship Partnership Corporations Cooperatives

22. Alternatives for Organizing a Business Sole Proprietorships Sole proprietor—form of business ownership in which the company is owned and operated by one person. 5-22

23. The Advantages of Sole Proprietorship The advantages of Sole Proprietorships easy to form and dissolve management flexibility the owner retains all profits

24. The Disadvantages of Sole Proprietorship The disadvantages of Sole Proprietorships the owner’s financial liability for all debts of the business (Unlimited liability) Limited financial resources Lack of managerial skill Limited life span

25. Alternatives for Organizing a Business Partnerships Partnership—form of business ownership in which the company is operated by two or more people 5-25

26. The Advantages of Partnership The advantages of Partnership easy to form complementary managerial skills Wider financial capacity

27. The Disadvantages of Partnership The disadvantages of Partnership unlimited financial liability by the owners if one partner wants to leave, the other partner may have to purchase the remaining portion of the company, or risk sale to someone else upon death of one partner, a new partnership must be formed difficult to dissolve Business profıts are shared among partners

28. Alternatives for Organizing a Business Corporations Corporations—business that stands as a legal entity with assets and liabilities separate from those of its owner(s). 5-28

29. The Advantages of Corporation The advantages of Corporation Limited liability they can generally draw upon the specialized skills of many employees Unlimited life span Expanded (Unlimited) financial capabilities

30. Stock Ownership and Stockholder Rights Preferred stock owners have limited or no voting rights; receive dividends before others Common stock owners have voting rights but only residual claims on assets and are the last to receive any income distributions 5-30

31. The Disadvantages of Corporation The disadvantages of Corporation Double taxation – the corporation pays state and local taxes, and then the owners have to pay income tax on stock dividend earnings difficult to form and dissolve. excess paperwork

32. Comparing the Three Major Forms of Private Ownership 5-32