business copyright 2005 prentice- hall, inc. 4-1
TRANSCRIPT
Copyright 2005 Prentice- Hall, Inc. 4-1
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Understanding Entrepreneurship Understanding Entrepreneurship & New Ventures& New Ventures
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What Is A “Small” Business?What Is A “Small” Business?EntrepreneurshipEntrepreneurshipStarting/Operating A New BusinessStarting/Operating A New BusinessFranchisingFranchisingSuccess/Failure In A Small BusinessSuccess/Failure In A Small BusinessNoncorporate Business OwnershipNoncorporate Business OwnershipCorporationsCorporations
Copyright 2005 Prentice- Hall, Inc. 4-4
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ess ““Small” BusinessSmall” Business
• Small Business AdministrationSmall Business Administration–Number of Number of
EmployeesEmployees
– Total Annual Total Annual SalesSales
• Independently Owned/Managed Independently Owned/Managed & Does Not Dominate Its Market& Does Not Dominate Its Market
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Small Business Small Business ImportanceImportance
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Need For Need For Small BusinessesSmall Businesses
• Job CreationJob Creation
• InnovationInnovation–Products/ServicesProducts/Services
–ProcessesProcesses
• Important To Big BusinessImportant To Big Business
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Small Business Small Business IndustriesIndustries
• ServicesServices
• ConstructionConstruction
• Finance & InsuranceFinance & Insurance
• WholesalingWholesaling
• Transportation & Transportation & ManufacturingManufacturing
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Small Business Impact Small Business Impact By IndustryBy Industry
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ess EntrepreneurEntrepreneur
• Accepts Risks & Opportunities In Accepts Risks & Opportunities In Creating/Operating A New BusinessCreating/Operating A New Business
• CharacteristicsCharacteristics
–ResourcefulResourceful–Good Customer RelationsGood Customer Relations–Desire To Be Own Boss- Gain Desire To Be Own Boss- Gain
Control Of LifeControl Of Life–Build For FamilyBuild For Family– Tolerance For Uncertainty/RiskTolerance For Uncertainty/Risk
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YesterdayYesterday TodayToday
Self-ReliantSelf-Reliant Open-MindedOpen-Minded
MaleMale Male or FemaleMale or Female
Quick DecisionsQuick Decisions Relies On Relies On OthersOthers
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Non-Financial Reasons Non-Financial Reasons To Start A BusinessTo Start A Business
9%7%
41%
21%
13%
9%
Do Something ILove
More Flexibility
Be Key DecisionMaker
Change Lifestyle
Spend More TimeWith Family
Don't Know or NotStated
Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf
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Financial Reasons Financial Reasons To Start A BusinessTo Start A Business
3%6%
12%
13%
27%
39%
Loss of Job Or ChangeOf Employment
More Income ForNecessities
Second Income
Bridge A Gap TillRetirement
Forced Into EarlyRetirement
Don't Know Or NotStated
Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf
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Start/OperateStart/OperateSmall BusinessSmall Business
Business Business PlanPlan
Start From Start From Scratch?Scratch?
FinancingFinancing
Buying Buying Existing?Existing?
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ess Business PlanBusiness Plan
• Summarizes StrategySummarizes Strategy
• Identifies ImplementationIdentifies Implementation
• Includes:Includes:
–Goals and ObjectivesGoals and Objectives
–Sales ForecastSales Forecast
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Business Plan- Projected Business Plan- Projected Financial StatementsFinancial Statements
• Cash Budget- Most Cash Budget- Most ImportantImportant
• Income Income StatementStatement
• Balance SheetsBalance Sheets
• BreakevenBreakeven
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My Customers?My Customers?Where?Where?Price?Price?Quantities Will Be Bought?Quantities Will Be Bought?Competitors?Competitors?Product Differentiation?Product Differentiation?
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Financing Small Financing Small Business- TraditionalBusiness- Traditional
• Family/FriendsFamily/Friends
• Personal Personal SavingsSavings
• LendersLenders
• InvestorsInvestors
• GovernmentGovernment
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Credit Usage By Small Credit Usage By Small Business Firms- 1998Business Firms- 1998
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Business Credit Card
Personal Credit Card
Owner Loan
Gov't
Other Businesses
Family & Friends
Leasing
Brokerage
Finance Co.
Comm. Bank
Thrift
Credit Union
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
Percentage of Small Firms Percentage of Small Firms
Using Credit By SuppliersUsing Credit By Suppliers
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Thrift3%
Unknown2%
Family & Friends
3%
Leasing17%
Fin. Co.9%
Commerical Bank48%
Other8%Owner Loan
10%
Share of Outstanding Debt for Small Share of Outstanding Debt for Small Firms By Supplier of Credit 1998Firms By Supplier of Credit 1998
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
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Percentage of Small Business Loans Percentage of Small Business Loans From Commercial Banks- 1998From Commercial Banks- 1998
Under $100K87%
$250K-$1M6%
$100-$249K
7%
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
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Other Sources Other Sources Of FinancingOf Financing
• Venture Capital CompaniesVenture Capital Companies• Small-Business Investment CompaniesSmall-Business Investment Companies• Small Business AdministrationSmall Business Administration– Guaranteed LoansGuaranteed Loans– Immediate Participation Immediate Participation
LoansLoans– Local Development Local Development
CompaniesCompanies• Other SBA ProgramsOther SBA Programs– SCORESCORE– SBDCsSBDCs
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ess Franchise SystemFranchise System
Franchise AgreementFranchise Agreement
FranchisorFranchisor
FranchiseeFranchisee
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ess Franchise ContractFranchise Contract
Franchisor, IncFranchisor, Inc..
FranchiseeFranchisee
Branded Branded Product/ServicProduct/Servic
eePerformancPerformanc
ee
MonitoringMonitoring$$$$$$$$$$
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ess FranchisingFranchising
To FranchiseeTo Franchisee
+Business Business OwnershipOwnership
+Access To Access To Mgmt. SkillsMgmt. Skills
+Low Failure Low Failure RateRate
To FranchiserTo Franchiser
+Rapid Growth Rapid Growth Using Other Using Other People’s MoneyPeople’s Money
To FranchiseeTo Franchisee
- High start-up High start-up costscosts
- % Of Sales To % Of Sales To FranchiserFranchiser
AdvantagesAdvantages DisadvantagesDisadvantages
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ess Trends In Small BusinessTrends In Small Business
• E-CommerceE-Commerce
• Big Business Big Business CrossoversCrossovers
• Minorities & WomenMinorities & Women
• Global Trade/SuppliersGlobal Trade/Suppliers
• Better Survival RatesBetter Survival Rates
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Startups:Startups:Success & FailureSuccess & Failure
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ess Growth of E-CommerceGrowth of E-Commerce
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Startups: Startups: Success vs. FailureSuccess vs. Failure
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3%15%
32%
15%
12%
12%
11%
Poor FinancialManagement
Incompetence orInexperience
Bad EconomicConditions
Poor Books orRecords
MarketingProblems
Staff or UnionProblems
Did Not UseExternal Advice
Source: The Coleman Chronicles, Vol. 1 Issue 20, “The Most Common Reasons for Small Business Failure… http://www.coleman.bc.ca/publications/chronicles/vol1issue20.htm
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ess Reasons For SuccessReasons For Success
• Hard Work, Drive, Hard Work, Drive,
& Dedication& Dedication
• Demand For Demand For
Product/ServiceProduct/Service
• Managerial CompetenceManagerial Competence
• LuckLuck
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Legal Entities of Legal Entities of Business OwnershipBusiness Ownership
• Sole Sole ProprietorshipProprietorship
• PartnershipsPartnerships– GeneralGeneral
– LimitedLimited
– Master LimitedMaster Limited
• CooperativesCooperatives
• CorporationsCorporations– Closely-Held vs. Closely-Held vs.
Publicly- HeldPublicly- Held– S CorporationS Corporation– Limited LiabilityLimited Liability– ProfessionalProfessional– Multinational Multinational
(Transnational)(Transnational)
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FreedomFreedom
Easy To FormEasy To Form
Low Start-up Low Start-up CostsCosts
Tax BenefitsTax Benefits
Unlimited Unlimited LiabilityLiability
Lack Of Lack Of ContinuityContinuity
Resources of Resources of One PersonOne Person
AdvantagesAdvantages DisadvantagesDisadvantages
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ess General PartnershipGeneral Partnership
More Talent & More Talent &
MoneyMoney
Easily CreatedEasily Created
Partners Taxed Partners Taxed
As IndividualsAs Individuals
Unlimited Unlimited LiabilityLiability
Lack Of Lack Of ContinuityContinuity
Difficult To Difficult To Transfer Transfer OwnershipOwnership
AdvantagesAdvantages DisadvantagesDisadvantages
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ess CorporationCorporation
Limited LiabilityLimited Liability ContinuityContinuity Access To More Access To More
CapitalCapital Ease Of Ease Of
Ownership Ownership TransferTransfer
Ease Of Ease Of Ownership Ownership TransferTransfer
Startup Cost- Startup Cost- Legal Legal RequirementsRequirements
Double TaxationDouble Taxation
AdvantagesAdvantages DisadvantagesDisadvantages
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Proportions of Legal Proportions of Legal Business EntitiesBusiness Entities
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ess Corporate GovernanceCorporate Governance
ShareholdersShareholders
Board Of DirectorsBoard Of Directors
OfficersOfficers
Business Business EmployeesEmployees
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ess Stock OwnershipStock Ownership
• PreferredPreferred– Fixed DividendFixed Dividend
–PriorityPriority
• CommonCommon–Dividend If ProfitableDividend If Profitable
– Last ClaimLast Claim
–Voting RightsVoting Rights
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Corporate Ownership-Corporate Ownership-Special IssuesSpecial Issues
• Joint Ventures & Strategic Joint Ventures & Strategic AlliancesAlliances
• Employee Stock Employee Stock OwnershipOwnership
• Institutional OwnershipInstitutional Ownership• Mergers & AcquisitionsMergers & Acquisitions• Divestitures & Spin-OffsDivestitures & Spin-Offs