Entrepreneurship New Ventures and Business Ownership 3 Copyright

1. Define small business, discuss its importance, and explain popular areas of small business. 2. Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities 3. Describe the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 4. Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 5. Explain sole proprietorships, partnerships, and Corporations and discuss the advantages and disadvantages of each. Copyright©© 2015 2012 Pearson. Education, Inc. Copyright Publishing as Prentice Hall 3 -2

What Is a “Small” Business? • Small business – one that is independent (not part of a larger business) and that has relatively little influence in its market. – Examples: Locally owned and operated restaurants, dry cleaners, car repair shops, and hair salons. – The U. S. Department of Commerce considers a business “small” if it has fewer than 500 employees. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -3

The Importance of Small Business Job creation Innovation Contributions to big business Copyright 2012

Job Creation • Small businesses have accounted for about 40 percent of all new jobs in hightechnology sectors of the economy. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -5

Innovation • Major inventions are likely to come from small businesses. • People worked in small businesses invented the personal computers, the stainless razor blade, the photocopier, the jet engine …. etc Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -6

Contributions to big businesses • Small business provide big businesses with product and services as raw materials and insurance services. • On the other side, most of the products made by big businesses are sold to small businesses as dealers or manufacturers. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -7

Popular Areas of Small-Business Enterprise Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education,

Entrepreneurship • Entrepreneur – businessperson who accepts both the risks and the opportunities involved in creating and operating a new business venture. • Entrepreneurship – the process of seeking business opportunities under conditions of risk. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -9

Entrepreneurial Characteristics • Resourcefulness. • Concern for good, personal customer relations. • Strong desire to be their own bosses. • Deal with uncertainty and risk. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -10

Starting the Small Business Buying an Existing Business Franchising Starting from Scratch Copyright 2012

Buying an existing business – Many experts recommend buying an existing business as it – if successful- has already proven its ability to attract customers and generate profits and has established relationships with stakeholders. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -12

Franchising – arrangement in which a buyer (franchisee) purchases the right to sell the good or service of the seller (franchiser). – Most Mc. Donald’s, Subway, 7 Eleven, RE/Max, Ramada, and Dunkin’ Donuts outlets are franchises operating under licenses issued by parent companies to local owners. – A franchise agreement involves two parties, a franchisee (the local owner) and a franchiser (the parent company). Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -13

Franchising • Advantages – Proven business opportunity – Access to management expertise • Disadvantages – Start-up costs – Ongoing payments ( a percent of sales to parent corporations ). – Management rules and restrictions Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -14

Starting from Scratch • Who and where are my customers? • How much will those customers pay for my product? • How much of my product can I expect to sell? • Who are my competitors? • Why will customers buy my product rather than the product of my competitors? • Dell, Wal-Mart, Southwest airlines, and Microsoft are among today’ most successful businesses that were started from scratch by entrepreneurs. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -15

Financing a Small Business • • • Personal resources Loans from family and friends Bank loans Venture capital companies (invest) Small-Business Investment Companies (invest) Minority Enterprise Small-Business Investment Companies (invest) • others Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -16

Trends in Small-Business Start-Ups • Emergence of E-Commerce – The Internet provides fundamentally new ways of doing business. • Crossovers from Big Business – More businesses are being started by people who have opted to leave big corporations and put their experience to work for themselves. • Opportunities for Minorities and Women – More small businesses are also being started by minorities and women. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -17

Emergence of E-commerce Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing

Reasons Women Give for Starting Businesses Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson

Trends in Small-Business Start-Ups • Global Opportunities – Many entrepreneurs are also finding new opportunities in foreign markets • Better Survival Rates – Today, 44 percent of new start-ups can expect to survive for at least four years. Small business failure rate has declined. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -20

Reasons of Success of small businesses • 1. Hard work, drive, and dedication: Smallbusiness owners must be committed and willing to spend the time and effort to make it happen. • 2. Market demand for the products or services being provided: Careful analysis of market conditions can help assessment. • 3 Managerial competence. Successful owners may acquire competence through training or experience or by drawing on the expertise of others. • 4 Luck. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -21

Reasons of Failure of small businesses • 1. Managerial incompetence or inexperience: Some entrepreneurs put too much faith in common sense, overestimate their own managerial skills, or believe that hard work alone ensures success. • 2. Neglect: Some entrepreneurs try to launch ventures in their spare time, and others devote only limited time to new businesses. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -22

Reasons of Failure of small businesses • 3. Weak control systems: Effective control systems keep a business on track and alert managers to potential trouble. • 4. Insufficient capital: Some entrepreneurs are overly optimistic about how soon they’ll start earning profits. In most cases, it takes months or even years. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -23

Business Ownership • Sole Proprietorship – business owned and usually operated by one person who is responsible for all of its debts. • General Partnership – business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts. • Corporation – business that is legally considered an entity separate from its owners. – is liable for its own debts; owners’ liability extends to the limits of their investments. Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -24

Proportions of U. S. Firms in Terms of Organization Type and Sales Revenue Copyright

Sole Proprietorship • Advantages • Disadvantage – Freedom – Simple to form – Low start-up costs – Tax benefits – Unlimited liability – Limited resources – Limited fundraising capability – Lack of continuity Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -26

Partnerships • Advantages • Disadvantages – More talent and money – More fundraising capability – Relatively easy to form – Limited liability for limited partners – Tax benefits – Unlimited liability for general partners – Disagreements among partners – Lack of continuity Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -27

Corporations • Advantages • Disadvantages – Limited liability – Continuity – Stronger fundraising capability – Can be taken over against the will of its management – Double taxation of profits – Complicated and expensive to form Copyright 2012 Pearson Education, Copyright ©© 2015 Pearson Education, Inc. Publishing as Prentice Hall 3 -28