CHAPTER 5 Small Business, Entrepreneurship, and Franchising

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part
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Starting and Growing A Business
CHAPTER 4 Options for Organizing Business
CHAPTER 5 Small Business, Entrepreneurship, and
Franchising
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Entrepreneurship

The process of creating and managing a business
to achieve desired objectives
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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)

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Impact of Small Businesses

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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

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Popular Industries for Small Business

• Especially attractive industries to
  entrepreneurs
• Retailing and wholesaling
• Services
• Manufacturing
• High technology

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Small Business Ownership

Advantages Disadvantages
Independence High stress level
Costs High failure rate 50 of all new businesses fail within the first 5 years
Flexibility Undercapitalization Lack of funds to operate normally
Focus Managerial inexperience or incompetence
Reputation Inability to cope with growth
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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

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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

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Forms of Business Ownership

• Sole Proprietorship
• Partnership
• Corporation

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Financial Resources

• Provide your own personal capital
• Cash money
• Obtain capital
• Financing options
• Loans
• Stocks
• Equity financing

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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

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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

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Debt Financing

• Borrowing financial resources typically from a
  bank or lending institution often collateral is
  needed

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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

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Franchise

• A license to sell anothers products or to use
  anothers name in business, or both
• Franchiser
• The company that sells a franchise
• Franchisee
• The purchaser of a franchise

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Franchises

Advantages Disadvantages
Training support Fees and profit sharing
Brand name appeal Standardized operations
National advertising Restrictions on purchasing
Financial assistance Limited product line
Proven products Possible market saturation
Greater chance for success Less freedom in decisions
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