Small Business and Entrepreneurship Chapter 6 6 1

Small Business and Entrepreneurship Chapter 6 6 -1 © 2007 Prentice Hall

Chapter 6 Objectives After studying this chapter, you will be able to: • Highlight the major contributions small businesses make to the U. S. economy • Identify the key characteristics that differentiate small businesses from larger ones • Discuss three factors contributing to the increase in the number of small businesses • Cite the key characteristics common to most entrepreneurs 6 -2 © 2007 Prentice Hall

Chapter 6 Objectives, cont. • List three ways of going into business yourself • Identify six sources of small-business assistance • Discuss the principle sources of small-business private financing 6 -3 © 2007 Prentice Hall

The World of Small Business • An entrepreneur • An idea • A Drive to succeed 6 -4 © 2007 Prentice Hall

Roles of Small Business • Provide new jobs • Introduce new products • Service large corporations 6 -5 © 2007 Prentice Hall

Roles of Small Business • Inject money into the economy • Take business risks • Provide specialty goods and services 6 -6 © 2007 Prentice Hall

Characteristics of Small Businesses Lifestyle High-Growth Run by Individuals Run by Teams Limited Products/Services Multiple Products/Services Limited Resources Investment Capital Limited Marketplace Large Marketplace 6 -7 © 2007 Prentice Hall

Factors Contributing to an Increase in Small Business • E-Commerce • Technology • Diversity • Corporate downsizing • Outsourcing 6 -8 © 2007 Prentice Hall

E-Commerce and Technology • New business • E-tailing opportunities • Resources 6 -9 © 2007 Prentice Hall

Diversity • Growing women/minority ownership • Immigrant start-ups • Young professionals 6 -10 © 2007 Prentice Hall

Downsizing and Outsourcing • Recession start-ups • Value web • Opportunity generation 6 -11 © 2007 Prentice Hall

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 6 -12 © 2007 Prentice Hall

Characteristics of Entrepreneurs • Stay abreast of market changes • Exploit new opportunities • Seldom follow trends • Driven by ambition • Think positively • Prefer risk taking over security 6 -13 © 2007 Prentice Hall

Importance of a Business Plan Guide Operations Outline Strategy Attract Lenders and Investors 6 -14 © 2007 Prentice Hall

The Business Plan Purpose • Summarize business venture • Communicate goals • Highlight strategies • Strategic advantages 6 -15 © 2007 Prentice Hall

The Business Plan Blueprint • • Summary Mission and objectives Company and industry Products or services Market and competition Management Marketing strategy Design and development plans 6 -16 © 2007 Prentice Hall

The Business Plan Blueprint • • Operation plans Overall schedule Critical risks and problems Financial projections and requirements • Exit strategy 6 -17 © 2007 Prentice Hall

Small Business Ownership • Start-up • Buy a business • Franchise 6 -18 © 2007 Prentice Hall

Starting a New Business Advantages Disadvantages + Control your destiny – Uncertainty of income + Reach your potential – Risk of loss + Unlimited profits – Long hours & hard work + Recognition + Doing what you enjoy – Complete responsibility © 2007 Prentice Hall 6 -19

Buying an Existing Business Advantages Disadvantages + Customer base – Alienated customers + Business systems – Obsolescence + Product or service – Location + Location – Personality clashes + Financing – Outstanding receivables © 2007 Prentice Hall 6 -20

The Franchising Alternative • Product franchise • Manufacturing franchise • Business-format franchise 6 -21 © 2007 Prentice Hall

Evaluating a Franchise • Initial franchise • Exclusive territory • Periodic royalties • Right of first refusal • Trademarks and names • Equipment and supplies • Advertising and promotion • Agreement termination • Franchise agreement • Business location 6 -22 © 2007 Prentice Hall

Pros and Cons of Franchising Advantages Disadvantages v Get a viable business v No guarantee of wealth v Name recognition v High monthly royalties v Network of support v Limited independence v Blueprint for success v Limited flexibility 6 -23 © 2007 Prentice Hall

Why Small Businesses Fail • Management Incompetence • Diminished Customer Base • Lack of Experience • Uncontrolled Growth • Insufficient Financing • Inappropriate Location • Poor Business Planning • Inadequate Controls • Unworkable Goals • Poor Entrepreneurial Skills 6 -24 © 2007 Prentice Hall

Sources of Small Business Assistance • Government agencies • Advisory boards • Nonprofit • Media organizations • Business partners • Mentors • Networks • Business incubators and accelerators 6 -25 © 2007 Prentice Hall

Financing a New Business Private Financing Banks and Micro-lenders Venture Capitalists Angel Investors 6 -26 © 2007 Prentice Hall

The Cost of Capital • Risk factors • Interest rates • Funding vehicles 6 -27 © 2007 Prentice Hall

Obtaining Capital Debt Financing Equity Financing Secured Loans Stock Sales Unsecured Loans Initial Public Offering 6 -28 © 2007 Prentice Hall

Debt Versus Equity Characteristic Debt Equity Maturity Specific Nonspecific Claim on Income Fixed Cost Variable Cost Claim on Assets Priority Residual Influence on Management Little Varies 6 -29 © 2007 Prentice Hall