Entrepreneurship Introduction to Business Small Business Small businesses
Entrepreneurship Introduction to Business
Small Business Small businesses and entrepreneurs • Fuel the economic engine of the U. S • Make economic growth and recovery from cyclical downturns possible • Create jobs • Are depended on by large businesses to support component parts, services, and product distribution
Entrepreneurs An entrepreneur is a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk. • Assume all risk and reward of a business • Often an innovator • Must balance decisiveness with risk
Advantages and Disadvantages of Starting a Business Advantages • Independence • Financial Gain • Control • Prestige • Equity • Opportunity Disadvantages • Time commitment • Risk • Uncertainty • Financial commitment
Reasons that Small Businesses Fail • Lack of planning • Failure to delegate • Unwillingness to change • Forgetting that cash is king • Lack of objective targets • Failure to ask the right questions
Considerations to take before starting a business Motivation –What is your incentive for starting a business? Strategy –What differentiates your business idea and the products or services from others in the market? Realistic vision –How long will it take to make your product or service available?
Steps to Starting a Business 1. Write a business plan 2. Get business assistance and training 3. Choose a business location 4. Finance your business 5. Determine the legal structure of your business 6. Register a business name 7. Get a Tax Identification Number 8. Register for state and local taxes 9. Obtain business licenses and permits 10. Understand employer responsibilities
Choosing a Business Location Choosing a business location may be the most important decision a small-business owner or startup will make, so it requires precise planning and research. It involves looking at demographics, assessing your supply chain, scoping the competition, staying on budget, understanding state laws and taxes, and much more.
The Steps May Vary Not all these steps will apply to every business. For example, many people start small businesses from their homes and do not hire employees initially.
The Business Plan The business plan is the roadmap to business success. The components of the plan cover everything from financial projections to physical location to products and services. Having a complete and thorough plan is essential to the success of any business venture—small or large. Businesses never plan to fail, but they do fail to plan!
Parts of a Business Plan • Executive summary • Company description • Market analysis • Organization and Management • Service or product line • Marketing and sales • Funding request • Financial projections
Executive Summary Briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. • Established businesses should include: a mission statement, company information, growth highlights, products/services, financial information, and summary of future plans. • New businesses should include: background on your experience, decisions that led you to start this particular enterprise, and evidence that you have done thorough market analysis.
Company Description Provides an overview of your business including: • Nature of your business • Marketplace needs that you are trying to satisfy • How your products and services meet these needs • Specific consumers, organizations, or businesses that your company serves or will serve • Competitive advantages that will make your business a success
Market Analysis Illustrates your industry and market knowledge as well as any of your research findings and conclusions. • Industry description and outlook • Information about your target market • Distinguishing characteristics • Size of the primary target market • Market share potential • Pricing and gross margin targets • Competitive analysis • Regulatory restrictions
Organization and Management Includes your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.
Service or Product Line Describes your service or product by outlining • Specific benefits of your product or service – from your customers’ perspective • Product’s life cycle • Existing or pending patents or copyrights • Research and development (R&D) activities
Marketing and Sales Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. After you have developed a comprehensive marketing strategy, you can then define your sales strategy. Sales strategy covers how you plan to actually sell your product.
Funding Request If you are seeking funding for your business, include the following: • Funding requirements • Type of funding you would like to have (e. g. , equity, debt), and any terms • Intended use of funds • Strategic financial situational plans
Financial Data If you own an established business, you will be requested to supply historical financial data for the last three to five years, including income statements, balance sheets, and cash flow statements. Both startup and established business are required to supply prospective financial data to show what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.
Appendix The appendix should be provided to readers on an asneeded basis and should not be included with the main body of your business plan. Specific individuals (such as creditors) may want access to this information to make lending decisions. The appendix can include items such as your credit history, résumés, letters of reference, and any additional information that a lender may request.
Practice Question John is a retired contractor looking for a modest income stream. His friend has a profitable business roasting coffee beans in small batches and no plans to expand to John’s part of town. John thinks there is demand there. What should he do? • Buy the equipment, lease a storefront, and get to work • Talk to his friend. Are they operating the machinery at full capacity or might he be able to lease it for a chunk of time each week? Is there a reason his friend has avoided his part of town? • Perform a thorough market analysis
Quick Review • Discuss the contributions of small business to the U. S. economy • Identify the common traits of successful entrepreneurs • Discuss the advantages, disadvantages, and important considerations of starting a small business • Describe the steps to starting a business • List and describe the key components of a business plan
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