1. Entrepreneurship & Small Business Management 10/2/2015 1

2. Characteristics of entrepreneurs  Entrepreneur – someone who takes a risk in starting a business to earn a profit  Key factors:  Desire to be your own boss  Develop a good initial plan  Coming up with innovative ideas  Entrepreneurship  Processes of starting, organizing, managing, & assuming the responsibility for a business  What does it take?  Confidence & capability to turn an idea into a business  Important to have an understanding of business operations and management 10/2/20152

3. Personal characteristics of successful entrepreneurs Entrepreneurs are moreThey have PersistentProblem-solving skills InquisitiveTolerance for ambiguity EnergeticStrong integrity Goal orientedPersonal initiative IndependentAbility to secure resources Self-confidentCapability to learn from failure CreativeWillingness to work hard Reliable Competitive 10/2/20153

4. Entrepreneurship & the economy  Nearly one in ten Americans are involved in some type of entrepreneurship activity.  More than 670,000 new businesses are created annually.  Risky…Nearly as many small businesses close as begin each year  Employment – Small business are most responsible for new employment  Over 60% of new jobs are created by businesses with fewer than 500 employees 10/2/20154

5. Financing  Most of the money needed to start a new business comes from the entrepreneur and his or her family & friends  20% of Americans have invested in a business of someone they know well.  Venture capital – money provided by large investors to finance new products and new businesses that have a good chance to be very profitable  Productivity  New & small businesses account for 55% of all innovative products & services developed 10/2/20155

6. Opportunities & risks  Giving up a regular job & stable income is a difficult choice.  Innovation – invention or creation that is brand new  Improvement – designed change that increases the usefulness of a product, service, or process.  Some opportunities come from an improved design, more effective procedures, or greater attention to quality 10/2/20156

7. Recognizing risks  1/3 of new businesses are profitable  1/3 do not make a profit but continue to operate  The remaining third lose money.  Over a 10-year period, more than 50% of all new businesses are discontinued 10/2/20157

8. Why businesses close  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 10/2/20158

9. Small business ownership  The greatest percentage of businesses in the U.S. is small business.  Small business employ half of all private sector employees  Small business – an independent business with fewer than 500 employees  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 10/2/20159

10. Small business employment  Small businesses are responsible for creating 60-80 percent of all new jobs.  Many small businesses are professional & technical.  Many construction companies operate as small businesses. 10/2/201510

11. Ownership diversity  Women own more than ¼ of all small businesses  More than 18% of small businesses have African-American, Asian-American, or Hispanic-American ownership.  The majority of small business owners are over 35 years old 10/2/201511

12. Small business advantages  Meeting customer needs  Serve customers where the # of products and services needed is small or the requirements are too specialized for large business to make a profit  Small businesses are not able to match the lower operating costs of larger businesses.  They can compete by paying attention to their customers. They serve fewer customers but have more frequent contact with them. 10/2/201512

13. Providing unique services  Business representatives must take a special interest in the customer.  They spend time determining needs & discussing alternatives.  They have the expertise to plan & deliver the services that satisfy the customer.  Customers may be willing to pay a little more for something that they really want 10/2/201513

14. Most common reasons for small business 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 10/2/201514

15. Small business assistance  Local groups of businesspeople (chamber of commerce)  Small business administration (SBA) – government agency that helps small business owners develop business plans and obtain financing and other support 10/2/201515

16. Starting a small business  An idea plus experience – every business begins with an idea  Right place & time – Find the right location  Team approach – employees must be chosen carefully  Preparation & research – having enough information to make good decisions about the business. This will save time & avoid later problems.  Info about customers, competitors, operations, government regulations, etc. 10/2/201516

17. Developing a business plan  Written description of the business idea and how it will be carried out.  Even if it’s not needed, a business plan should be developed to force the owner to think about important activities and their cost.  May help identify potential problems and serve as a guide to keep the business on track 10/2/201517

18. Steps in developing the business plan 1. Gather & review information 2. Develop strategic alternatives  Alternative plans for production, marketing, staffing, & financing should be studied & identified 3. Each section of the business plan should be written  Competition, potential customers, operations, marketing, & finances. 10/2/201518

19. Financing the small business  Types of financing  Start-up financing – amount of money needed to open the business  Buildings, inventory, supplies, licenses, etc.  Short-term financing – money needed to pay for the current operating activities of a business. (less than one year)  Long-term financing – money needed for main resources of a business (land, buildings, & equipment) 10/2/201519

20. Sources of financing  Most difficult part of starting a business  Finding the needed money  Money comes from a mixture of owner-supplied & borrowed funds  Owner-supplied depends on type of business  Borrowed funds are obtained through loans from banks & other financial institutions 10/2/201520