powerpoint presentation by charlie cook copyright © 2005 prentice hall, inc. all rights reserved....
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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookCopyright © 2005 Prentice Hall, Inc.Copyright © 2005 Prentice Hall, Inc.
All rights reserved. All rights reserved.
Chapter 3Chapter 3
Understanding Understanding EntrepreneurshiEntrepreneurshi
p and Small p and Small BusinessBusiness
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Key Topics
• Small business and its importance in the economy
• Entrepreneurship versus small business• Starting and funding a small business• Sole proprietorships, partnerships, and
corporations• Creating and managing corporations• Corporate trends and issues
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What Is “Small Business”?
• Independently owned and managed business that does not dominate its market
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Job CreationJob CreationJob CreationJob Creation
InnovationInnovationInnovationInnovation
Importance to Big Importance to Big BusinessesBusinesses
Importance to Big Importance to Big BusinessesBusinesses
Small business plays a critical role in the U.S. economy.
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“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”
—Victor Kiam
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Entrepreneurship vs. Small Business
Entrepreneur:
Accepts the risks and opportunities of creating, operating and growing a new business.
Small Business Owner:Does not have plans for growth.
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Getting Started
Starting From Starting From ScratchScratch
Buying an Buying an Existing BusinessExisting Business
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Financing the Small Business
• Personal resources• Loans• Venture capital companies• Small-business investment companies• Small Business Association (SBA)
Financial aid and management advice
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Franchising: An Ownership OpportunityAn Ownership Opportunity
AdvantagesAdvantagesProven businessProven business
opportunityopportunity
Access toAccess to
managementmanagement
expertiseexpertise
AdvantagesAdvantagesProven businessProven business
opportunityopportunity
Access toAccess to
managementmanagement
expertiseexpertise
DisadvantagesDisadvantagesStart-up costsStart-up costs
On-going paymentsOn-going payments
Management rulesManagement rules
and restrictionsand restrictions
DisadvantagesDisadvantagesStart-up costsStart-up costs
On-going paymentsOn-going payments
Management rulesManagement rules
and restrictionsand restrictions
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Trends in Small Business Start-ups
Emergence of Emergence of E-commerceE-commerce
Crossovers FromCrossovers FromBig BusinessBig Business
Opportunities for Opportunities for Minorities & WomenMinorities & Women
GlobalGlobalOpportunitiesOpportunities
IncreasedIncreasedSurvival RatesSurvival Rates
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Reasons for Success and Failure
• FailurePoor managementNeglectWeak control systems Insufficient capital SuccessSuccess
• Hard work, drive, Hard work, drive, dedicationdedication
• Market demandMarket demand• Strong managementStrong management• Luck!!!Luck!!!
SuccessSuccess• Hard work, drive, Hard work, drive,
dedicationdedication• Market demandMarket demand• Strong managementStrong management• Luck!!!Luck!!!
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Sole Proprietorships
Advantages:• Freedom• Simple to form• Low start up costs• Tax benefits
Disadvantages:• Unlimited Liability• Limited resources• Limited fundraising
capability• Lack of continuity
Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible for Legal principle holding owners responsible for
paying off all debts of a businesspaying off all debts of a business
Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible for Legal principle holding owners responsible for
paying off all debts of a businesspaying off all debts of a business
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Partnerships
Advantages:• More talent and money• More fundraising
capability• Relatively easy to form• Tax benefits
Disadvantages:• Unlimited liability• Disagreements among
partners• Lack of continuity
Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible Legal principle holding owners responsible
for paying off all debts of a businessfor paying off all debts of a business
Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible Legal principle holding owners responsible
for paying off all debts of a businessfor paying off all debts of a business
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What is a Corporation?
• “An artificial being, invisible, intangible, and existing only in contemplation of the law.”
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Corporations
Advantages:• Limited Liability• Continuity• Stronger fundraising
capability
Disadvantages:• Double taxation• Fluid control• Complicated and
expensive to form
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Types of Corporations
• Closely Held (Private) Corporation
• Publicly Held (Public) Corporation
• Subchapter S Corporation
• Limited Liability Corporation (LLC)
• Professional Corporation
• Multinational or Transnational Corporation
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Corporate Governance Hierarchy
OfficersOfficers
Board of DirectorsBoard of Directors
StockholdersStockholders
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Three Forms of Business
BusinessBusinessFormForm
Liability Continuity ManagementInvestment Investment
SourcesSources
Personal, limited
Ends with death or decision of owner
Personal, unrestricted
PersonalPersonal
Personal, unlimited
Ends with death or decision of any partner
Unrestricted or depends on partnership agreement
Personal by Personal by partner(s)partner(s)
Capital invested
As stated in charter, perpetual or for specified period of years
Under control of board of directors, which is selected by stockholders
Purchase of Purchase of stockstock
ProprietorshipProprietorship
General General PartnershipPartnership
CorporationCorporation
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Copyright © 2005 Prentice Hall, Inc. All rights reserved. 3–19
Chapter Review
• Define small business and explain its importance to the U.S. economy.
• Distinguish between entrepreneurship and small business.
• Describe the start-up decisions made by small businesses and the potential sources of financial aid and management advice.
• Describe sole proprietorships, partnerships, and corporations, and explain the advantages and disadvantages of each.
• Identify the different types of corporations.