Small Business Entrepreneurship and Franchises Prentice Hall 2005

Small Business, Entrepreneurship, and Franchises © Prentice Hall, 2005 Excellence in Business, Revised Edition 1

The Small Business • Independently owned and operated • Not dominant in its field • Relatively small annual sales • Fewer than 500 employees © Prentice Hall, 2005 Excellence in Business, Revised Edition 2

Economic Roles of Small Business • Provide jobs • Introduce new products • Service large corporations • Engage in specialization © Prentice Hall, 2005 Excellence in Business, Revised Edition 3

Types of Small Business Lifestyle • Run by Individuals High-Growth • Run by Teams • Limited Products/Services • Multiple Products/Services • Limited Resources • Investment Capital • Limited Marketplace • Large Marketplace © Prentice Hall, 2005 Excellence in Business, Revised Edition 4

How Entrepreneurs Spend Their Time • Dealing with employees • Keeping records • Direct selling • Production • Maintenance • Dealing with suppliers • Arranging financial matters • Planning growth and change • Other services © Prentice Hall, 2005 Excellence in Business, Revised Edition 5

Traits 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 © Prentice Hall, 2005 Excellence in Business, Revised Edition 6

Characteristics of Entrepreneurs • Stay abreast of market changes • Willing to exploit new opportunities • Seldom follow trends • Driven by ambition • Think positively • Prefer risk taking over security © Prentice Hall, 2005 Excellence in Business, Revised Edition 7

Factors Contributing to Small Business Growth • Technology and the Internet • Women and minorities • Downsizing and outsourcing © Prentice Hall, 2005 Excellence in Business, Revised Edition 8

Women Starting Businesses • • Entrepreneurial idea Glass ceiling Bored in job Downsized Fell into it Family event Born entrepreneur Reenter workforce © Prentice Hall, 2005 Excellence in Business, Revised Edition 9

Starting a Small Business • Starting a new business • Buying an existing business • Obtaining a franchise © Prentice Hall, 2005 Excellence in Business, Revised Edition 10

Starting a New Business Advantages Disadvantages + Control your destiny + Reach your potential – Uncertainty of income + Unlimited profits – Risk of loss + Recognition – Long hours & hard + Doing what you enjoy © Prentice Hall, 2005 work – Complete Excellence in Business, Revised Edition responsibility 11

Buying an Existing Business Advantages Disadvantages + Customer base – Alienated customers + Business systems – Obsolescence + Product or service – Location + Location – Personality clashes + Financing – Outstanding © Prentice Hall, 2005 receivables Excellence in Business, Revised Edition 12

The Franchise Alternative • Franchisee • Franchisor • Types of franchises – Product – Manufacturing – Business-format © Prentice Hall, 2005 Excellence in Business, Revised Edition 13

The Pros and Cons of Franchising Advantages Disadvantages § Get a viable business § Instant name recognition § Expensive to obtain § Built in support group § High monthly royalties § Marketing & advertising § Limited independence © Prentice Hall, 2005 § No guarantee of success Excellence in Business, Revised Edition 14

How to Evaluate a Franchise • What does the initial franchise fee cover? • How are periodic royalties calculated and when are they paid? • Are all trademarks and names legally protected? • Who provides and pays for advertising and promotion? • Who selects the location of the business? © Prentice Hall, 2005 Excellence in Business, Revised Edition 15

How to Evaluate a Franchise • Is the franchise assigned an exclusive territory? • Does the franchisee have the right of first refusal on additional nearby franchises? • Is the franchisee required to purchase equipment and supplies from the franchisor? • How can the franchise agreement be terminated? • Can the franchise be assigned to heirs? © Prentice Hall, 2005 Excellence in Business, Revised Edition 16

Importance of a Business Plan • Guides company operations • Outlines a strategy • Attracts lenders and investors © Prentice Hall, 2005 Excellence in Business, Revised Edition 17

A Formal Business Plan • Summary • Mission and objectives • Company and industry • Products or services • Market and competition • Management • Marketing strategy © Prentice Hall, 2005 Excellence in Business, Revised Edition 18

A Formal Business Plan • Design and development plans • Operations plan • Overall schedule • Critical risks and problems • Financial forecasts and requirements • Exit strategy © Prentice Hall, 2005 Excellence in Business, Revised Edition 19

Why New Businesses Fail • Management Incompetence • Diminished Customer Base • Lack of Industry Experience • Uncontrolled Growth • Inadequate Financing • Inappropriate Location • Poor Business Planning • Poor System of Controls • Unworkable Goals • Lack of Entrepreneurial Skills © Prentice Hall, 2005 Excellence in Business, Revised Edition 20

Sources of Small Business Assistance • SCORE • Incubators • The Internet • Small Business Administration © Prentice Hall, 2005 Excellence in Business, Revised Edition 21

Private Sources of Financing • • • Friends and family Commercial lenders Corporate financing Venture capitalists Angel investors Credit cards © Prentice Hall, 2005 Excellence in Business, Revised Edition 22