1. © 2006 Pearson Education Canada Inc.Chapter 4 - 1 Chapter 4 Starting and Financing a Small Business

2. © 2006 Pearson Education Canada Inc.Chapter 4 - 2 The Small Business Not Dominant Not Dominant In Its Field Not Dominant Not Dominant In Its Field Fewer Than 500 Employees Fewer Than 500 Employees Independently Owned and Operated Independently Relatively Small Annual Sales Relatively Small Annual Sales

3. © 2006 Pearson Education Canada Inc.Chapter 4 - 3 Economic Roles of Small Business Provide New Jobs Introduce New Products Service Large Corporations Engage in Specialization

4. © 2006 Pearson Education Canada Inc.Chapter 4 - 4 Types of Small Business LifestyleHigh-Growth Run by Individuals Limited Products/Services Limited Resources Limited Marketplace Run by Teams Multiple Products/Services Investment Capital Large Marketplace

5. © 2006 Pearson Education Canada Inc.Chapter 4 - 5 Innovation in Small Business Faster Decisions Access to Owners Individual Expression

6. © 2006 Pearson Education Canada Inc.Chapter 4 - 6 How Entrepreneurs Spend Their Time

7. © 2006 Pearson Education Canada Inc.Chapter 4 - 7 Factors Contributing to Small Business Growth Technology and the Internet Women and Minorities Downsizing and Outsourcing

8. © 2006 Pearson Education Canada Inc.Chapter 4 - 8 Women Starting Businesses

9. © 2006 Pearson Education Canada Inc.Chapter 4 - 9 Characteristics of Entrepreneurs Highly disciplined Like to control their destiny Listen to their intuition Relate well with others Eager to acquire new skills Learn from their mistakes

10. © 2006 Pearson Education Canada Inc.Chapter 4 - 10 Characteristics of Entrepreneurs Stay abreast of market changes Willing to exploit new opportunities Driven by ambition Think positively Prefer risk taking over security

11. © 2006 Pearson Education Canada Inc.Chapter 4 - 11 Preparing a Business Plan Summarize the Business Communicate Goals Highlight Plans Show Customer Benefits

12. © 2006 Pearson Education Canada Inc.Chapter 4 - 12 Importance of a Business Plan Guides Company Operations Outlines Strategy Attracts Lenders and Investors

13. © 2006 Pearson Education Canada Inc.Chapter 4 - 13 Starting a New Business + Control your destiny + Reach your potential + Unlimited profits + Recognition + Doing what you enjoy – Uncertainty of income – Risk of loss – Long hours & hard work – Complete responsibility – High stress levels AdvantagesDisadvantages

14. © 2006 Pearson Education Canada Inc.Chapter 4 - 14 Buying an Existing Business + Customer base + Business systems + Product or service + Location + Financing – Alienated customers – Obsolescence – Location – Personality clashes – Outstanding receivables AdvantagesDisadvantages

15. © 2006 Pearson Education Canada Inc.Chapter 4 - 15 The Franchise Alternative FranchiseeFranchisor Types ProductManufacturingBusiness- Format

16. © 2006 Pearson Education Canada Inc.Chapter 4 - 16 How to Evaluate a Franchise What does the initial franchise fee cover? How are periodic royalties calculated and when are they paid? Are all trademarks and names legally protected? Who provides and pays for advertising and promotion? Who selects the location of the business?

17. © 2006 Pearson Education Canada Inc.Chapter 4 - 17 How to Evaluate a Franchise Is the franchise assigned an exclusive territory? Does the franchisee have the right of first refusal on additional nearby franchises? Is the franchisee required to purchase equipment and supplies from the franchisor? How can the franchise agreement be terminated? Can the franchise be assigned to heirs?

18. © 2006 Pearson Education Canada Inc.Chapter 4 - 18 The Pros and Cons of Franchising Advantages  Get a viable business  Instant name recognition  Built-in support group  Marketing & advertising Disadvantages  No guarantee of success  Expensive to obtain  High monthly royalties  Limited independence

19. © 2006 Pearson Education Canada Inc.Chapter 4 - 19 Why New Businesses Fail Management Incompetence Lack of Industry Experience Inadequate Financing Poor Business Planning Unworkable Goals Diminished Customer Base Uncontrolled Growth Inappropriate Location Poor System of Controls Lack of Entrepreneurial Skills

20. © 2006 Pearson Education Canada Inc.Chapter 4 - 20 TheInternet Incubators BDC Sources of Small Business Assistance

21. © 2006 Pearson Education Canada Inc.Chapter 4 - 21 Financing A New Business Length of Term Cost of Capital Debt or Equity

22. © 2006 Pearson Education Canada Inc.Chapter 4 - 22 Length of Term Short-TermLong-Term Meet Financial Obligations Obligations Acquire buildings and equipment Acquire buildings and equipment Start-up or Expand Operations Operations Maintain Liquidity

23. © 2006 Pearson Education Canada Inc.Chapter 4 - 23 The Cost of Capital Risk Factors Interest Rates Funding Vehicles

24. © 2006 Pearson Education Canada Inc.Chapter 4 - 24 Obtaining Capital Debt Financing Equity Financing Unsecured Loans StockStock Initial Public Offering Offering Secured Loans

25. © 2006 Pearson Education Canada Inc.Chapter 4 - 25 Debt Versus Equity CharacteristicDebtEquity Maturity Claim on Income Claim on Assets Influence Over Management Specific Fixed Cost Priority Little Nonspecific Discretionary Cost Residual Varies

26. © 2006 Pearson Education Canada Inc.Chapter 4 - 26 CorporateFinancingCorporateFinancingPersonalAssetsPersonalAssets CreditCardsCreditCardsVentureCapitalistsVentureCapitalists BankLoansBankLoans Private Sources of Financing Private Sources of Financing FriendsFriends AngelInvestorsAngelInvestors