1. FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. part CHAPTER 5 Small Business, Entrepreneurship, and Franchising 2 CHAPTER 4 Options for Organizing Business FHF 5-2

3. [] FHF Entrepreneurship 5-3 The process of creating and managing a business to achieve desired objectives

4. FHF What is Small Business?  “Smallness” is relative  Small business is any independently owned and operated business, not dominant in its competitive area  Employs less than 500 people (in USA) 5-4

5. FHF Impact of Small Businesses 5-5

6. FHF Small Businesses Represent  64% of new net jobs, annually, created in the last 15 years  99.7% of all businesses employ fewer than 500 people  89% of businesses employ fewer than 19 people 5-6

7. FHF Small Business Innovation Small businesses represent 55% of all innovations Airplane Audio tape recorder Double-knit fabric Fiber-optic examining equipment Heart valve Optical scanner Personal computer Soft contact lenses Zipper … and much more 5-7

8. FHF Popular Industries for Small Business Especially attractive industries to entrepreneurs:  Retailing and wholesaling  Services  Manufacturing  High technology 5-9

9. FHF Retailing and Wholesaling Selling directly to consumers  Music stores  Sporting-goods shops  Dry cleaners  Boutiques  Drugstores  Restaurants  Hardware stores 5-10

10. FHF Services and Manufacturing Services Service sector is 80% of U.S. jobs Manufacturing Small manufacturers excel at customization 5-11

11. FHF High Technology Businesses that depend heavily on advanced scientific and engineering knowledge.  40% of high-tech jobs are with small businesses 5-12

12. FHF Small Business Ownership 5-13 AdvantagesDisadvantages IndependenceHigh stress level CostsHigh failure rate 50% of all new businesses fail within the first 5 years FlexibilityUndercapitalization Lack of funds to operate normally FocusManagerial inexperience or incompetence ReputationInability to cope with growth

13. FHF Starting a Business  Start with a concept or general idea  Create a business plan  Devise a strategy to guide planning & development  Make decisions Form of ownership Financing Acquire existing business or start new business? Buy a franchise 5-14

14. FHF The Business Plan A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Acts as a guide and reference document. Explanation of the business Analysis of competition Income/Expense estimates 5-15

15. FHF Forms of Business Ownership  Sole Proprietorship  Partnership  Corporation 5-16

16. FHF Financial Resources Provide your own personal capital  Cash money  Obtain capital Financing options  Loans  Stocks  Equity financing 5-17

17. [] FHF Equity Financing Selling or borrowing against the value of an asset such as an (automobile, insurance policy, savings account) to obtain funds to operate a business 5-18

18. [] FHF Venture Capitalists Persons/organizations that agree to provide funding for a new business in exchange for an ownership interest or stock. Usually requires a sharing of ownership/control 5-19

19. [] FHF Debt Financing Borrowing financial resources typically from a bank or lending institution– often collateral is needed 5-20

20. FHF Starting from Scratch vs. Buying an Existing Business Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business  Existing businesses have the advantage of a built-in network of customers, suppliers and distributors  Reduces guesswork  Involves taking on any problems the business already had 5-22

21. FHF FranchiseFranchise A license to sell another’s products or to use another’s name in business, or both  Franchiser  The company that sells a franchise  Franchisee  The purchaser of a franchise 5-23

22. FHF FranchisesFranchises 5-24 AdvantagesDisadvantages Training & supportFees and profit sharing Brand name appealStandardized operations National advertisingRestrictions on purchasing Financial assistanceLimited product line Proven productsPossible market saturation Greater chance for successLess freedom in decisions