Small Business, Entrepreneurship, and Franchising

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CHAPTER 5

• Small Business, Entrepreneurship, and Franchising

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Small Business...

• Represents 97.3 of business establishments.
• Created more than 80 of all new jobs in fiscal
  1996-97
• Accounted for 50 of GDP in 1999
• Provided over half of the employment in Canada in
  1999

5-2
Source Small Business Answer Card 1998, Small
BusinessAdministration Office of Advocacy,
http//www.sba.gov/ADVO/stats/answer.html,
August 23, 1998.
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Small Business, Entrepreneurship, and Franchising

• Entrepreneur person who risks his/her wealth,
  time, effort to develop for profit an innovative
  product or way of doing something
• Entrepreneurship process of creating and
  managing a business to achieve desired objectives

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What is Small Business?

• Any independently owned and operated business
  that is not dominant in its competitive area and
  employs fewer than 500 people.

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Role of Small Business.

• Job Creation
• Innovation
• Exporting

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of Firms byEmployment Size
5-4
Source Key Small Business Statistics, May 2003,
p.12. Retrieved from www.strategis.gc.ca/statisti
cs.
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Top Five SmallBusiness Industries
5-6
SourceKey Small Business Statistics as reported
at www.strategis.gc.ca/sbstatistics..
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Ch.6 Small Business.

• Industries attracting small business
• retail/wholesaling
• manufacturing
• services
• high tech

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Advantages of Small Business

• Personal
• Independence
• Work-Life balance
• Sense of accomplishment
• Business
• Lower startup costs
• flexibility and quick decision making
• focus on niche markets
• reputation

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Disadvantages of Small Business

• High stress level
• High time commitment
• Personal investment
• Legal liabilities
• High failure rate
• Undercapitalization
• Managerial inexperience or incompetence
• Inability to cope with growth

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Starting a Small Business

• The Business Plan
• Forms of Business Ownership(chapter 4)
• Financial Resources
• Create a new business or buy an existing one?

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The Business Plan

• Business Plan A precise statement of the
  rationale for the business and a step-by-step
  explanation of how it will achieve its goals
• Contains business description competitive
  analysis marketing plan financial plan and
  Organizational plan.

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The Business Plan

• Purpose of the Business Plan
• Sales Document to Investors and Lenders Is the
  business worth providing money too?
• Management Document Provides direction to
  decision makers. Sets goals and timetables.
• Feasibility Study of the viability of the business

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The Business Plan

• Business Plan needs to address key questions
• What are you selling?
• Who is going to buy it? Sufficient Interest?
• Is anybody else doing it?
• What are your goals?
• What type of employees do you need?
• How much is it going to cost?
• How much money will you make?

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Financial Resources

• What does a business need money for?
• Start-Up Costs (costs incurred before revenue
  generated) Building, feasibility studies,
  inventory, equipment, etc..
• Operating Costs (costs incurred after start-up)
  salaries, interest on loans, inventory, heating
  and lighting, etc..
• Growth

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Financial Resources

• Equity financing
• owners funds
• venture capitalists
• Debt financing
• loans
• lines of credit
• trade credits

6-11
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35 Fastest Growing Companies in Atlantic Canada

• How was growth financed?
• Profits 25
• Loans 15
• Owners 10
• Government 8
• Public Stock Issue 5
• Family and Friends 3

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Approaches to Starting a Business

• Creating a new business from scratch
• Buying an existing business
• existing customer base, supplier and distributor
  relationships, company history
• Franchising

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From Scratch or Purchase?
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From Scratch or Purchase?
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From Scratch or Purchase?
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From Scratch or Purchase?
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From Scratch or Purchase?
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Franchising

• Franchise A license to sell anothers products
  and/or to use anothers name in business.
• Franchisor Company that sells the franchise
• Sells rights to name, logo, methods of operation,
  national advertising, products, etc..
• Franchisee Purchaser of the Franchise
• Initial fee, monthly fees, follow co. rules, buy
  equipment, mortgage or lease,

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Advantages and Disadvantages of Franchising

• Advantages
• Built in name recognition
• Built in customer base
• Franchisor expertise
• Management
• Accounting
• Store Design
• National Advertising

• Disadvantages
• Less Flexibility and Control
• Payment to join Franchise
• Division of Profits with Franchisor

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Top 10 Fastest-Growing Franchises for 2002
5-13

• Growth during 2001
• Kumon Math Reading Centers 2,259
• 7-Eleven Inc 1,654
• Curves for Women 555
• Coverall North America Inc. 1,675
• Subway 1,356
• Jani-King 681
• Jackson Hewitt Tax Service 483
• KFC Corp 996
• McDonalds 895
• Budget Rent A Car Corp. 97

Sourcewww.entrepreneurmag.com/Franchise_Zone
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Solve the Dilemma

• a. Evaluate the idea of a low-fat cookie and
  muffin retail store.
• b. Are there any concerns in connection with
  starting a small business that Jack and Bruce
  have not considered?
• c. What advice would you give Jack and Bruce as
  they start up their business?

6-16
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Top Ten Franchises
6-12
Source Entrepreneurs Franchise 500 For 2002 as
reported Feb. 25,2002 at http//www.entrepreneurma
g.com/Franchise_Zone.
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Additional Discussion Questions and Exercises

• 1. Assume you wanted to go into business for
  yourself. What kind of business would you
  prefer? What would be the financial
  requirements for entering the business? What
  type of work or managerial experience would you
  need?
• 2. What should be included in a business plan?
  What is the importance of a business plan to
  the small-business entrepreneur?

6-18a
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Additional Discussion Questions and Exercises

• 3. What are the goals of venture capitalists when
  they invest in new businesses?
• 4. Think of your local community. Can you name
  five new businesses that have started up
  recently? Would you consider these new
  businesses to be small businesses? Are these
  new businesses franchises?

6-18b