1. ENTREPRENEURSHIP
Chapter 4

2. What is Entrepreneurship?
Think of some of your favorite things….clothes, shoes, stores, food, etc?
Who started the business?
Small businesses, usually those with fewer than 500 employees, represent 99% of American businesses.
They employ more than 50% of the nonmilitary workforce.
A person who organizes and then runs a business is called an entrepreneur.

3. What is Entrepreneurship?
An entrepreneur’s life is challenging
Planning is a big part of getting the business up and running
Must make good decisions
Find inventive solutions to problems
Risks are high but the rewards can be great
Does this challenge appeal to you?
Are you willing to take the risks?

4. Advantages of Entrepreneurship
You are in charge
Decide when and how hard to work
How the business will operate
Great job satisfaction
Can lead to good income

5. Disadvantages of Entrepreneurship
Financial risk
Lose initial start up money and more
Work long hours
Competition can be difficult to overcome
No guarantees of success
Almost half of new businesses fail within their first four years.

6. Traits of Entrepreneurs
Self-motivation
They know what they want and believe in their ability to achieve it
They stay motivated by setting short and long-term goals.
They make a plan how to achieve those goals
Perceptive
They see opportunities where others do not
They look at problems and see opportunities
Follow trends
Do your research by talking to customers to see how to meet their needs

7. Traits of Entrepreneurs
Decisive
Make decisions every day
Must be good decisions
Look at the whole picture
How can the decision help
How can the decision hurt

8. Being a Business Owner Four main ways to go into business
Start a new business
Buy an existing business
Buy a franchise
Join a family business

9. Starting a New Business
Chance to work hard and put your business ideas to the test
Rewards
Do not inherit a pervious owner’s mistakes or poor reputation
Develop your own reputation
Build the business your way
Use your experiences and information you have gained from studying other businesses
Personal satisfaction from knowing you built the business

10. Starting a New Business
Challenges
Requires more time and effort
Start-up costs are often high (rent / buy space, equipment, office supplies and insurance)
You will have to convince lenders that your business idea is sound
It is risky = no guarantees that your business will succeed

11. Buying an Existing Business
A successful may be for sale because the owners are retiring or starting a new business
An unsuccessful business might be for sale for many reasons
Losing money
Before buying, see if the problems can be fixed and at what expense
Advantages
Can put you several steps ahead
Save on start-up costs (jump in on leases, purchase existing equipment)
Can build on the successes
Goodwill or loyalty of existing customers
Positive reputation
Trained staff

12. Buying an Existing Business
Disadvantages
Location may be poor
Competition may be taking business away
Market outlook (potential for future sales) may be poor
Building or equipment may need expensive repairs or replacement
May have a poor reputation

13. Buying a Franchise
Franchise – legal right to sell a company’s goods and services in a particular area
Example: restaurants, hair salons, real estate offices, etc.
Buy the right to sell another company’s products
In addition to paying for the franchise you agree to pay a percentage of your profits to the parent company

14. Buying a Franchise Advantages Disadvantages A recognized product name
Established procedures and management systems
A business reputation and customer goodwill
Training and support services
Advertising
Financing
Disadvantages
Pay a portion of the profits to the parent company
May be less profitable
Must follow the parent company’s guidelines
May be less satisfaction because you did not build it

15. Joining a Family Business
Advantages
Relatives might help you finance the business
Family = Loyal + Trust
Family members working as a team can achieve more than individuals
Relatives can teach you the business
Customers are likely to give the same trust and goodwill to a new owner who is part of the previous owner’s family
Potential Disadvantages
Some families work well together / others do not
Difficulties at work can affect family relationships

16. Owning a Business
One of the first questions – how to organize your business?
Most businesses begin as a sole proprietorship – owned by one person. The owner owns all the assets and debts.
A partnership is a legal arrangement in which two or more people share ownership. Control and profits are divided among the partners according a an agreement. All partners are liable for the debts.
A corporation is a business chartered by a state that legally operates apart form the owner(s). The owners buy shares of the company. Shareholders have only limited responsibility for the debts.

17. Forms of Legal Ownership
Forms of Business Ownership
Advantages
Disadvantages
Sole Proprietorship
Owner makes all decisions
Easiest form of business to set up
Least regulated form
Limited by the skills, abilities, and financial resources of one person
Difficult to raise funds to finance business
Owner has sole financial responsibility for company; personal assets may be at risk
Partnership
Can draw on the skills, abilities, and financial resources of more than one person
Easier to raise funds than in sole proprietorship
More complicated than sole proprietorship
Tensions may develop among partners
Owners liable for all business losses; personal property may be at risk
Corporation
Easier to finance than other forms of business
Financial liability of shareholders limited
Expensive to set up
Record keeping can be time consuming and costly
Can pay more taxes than other forms

18. Financing
Business Plan – gives specific information about your business
Describes your product and states where your business will be located
How many employees you will hire and what their salaries are
Describes your competitors and points out their strengths and weaknesses
Describes your marketing plan and timetable
Financial Plan – spell out your start-up costs, operating expenses and other costs for the first few months
Operating expenses are the cost of doing business (ex. manufacturing and selling the product)

19. Ongoing Operations Must keep accurate financial records
Tax purposes
Seeking additional financing
Tells you how your business is doing
Income statement
Summary of a business’s income and expenses during a specific period
Revenue – income from sales
Gross profit – difference between the cost of goods and their selling price
Net profit – amount left after operating expenses are subtracted from the gross profit

20. Ongoing Operations
Balance Sheet – summarizes a business’s assets, liabilities and owner equity
Assets – anything of monetary value that you own (current assets - money in the bank , inventory, etc. / fixed assets – land, equipment, furniture and fixtures)
Liabilities = debts a business owes
Current liabilities must be paid during the current year
Long-term liabilities are not due in the next 12 months
Net Worth – difference between assets and liabilities
The savings you invest in your business are your equity, or ownership interest, in the business.

21. Ongoing Operations
Cash flow statement – a monthly plan that shows when you anticipate cash coming into the business and when you expect to pay out cash
This helps you see if you will have enough money to pay your bills

22. Succeeding in Business
Location –
Are you near your potential customers?
Can you work at home to reduce expenses?
Online business – location not as important
Factors to consider
Type of businesses in the area
Condition of streets and buildings
Cost of property
Location of competition
Location of your customers

23. Succeeding in Business
Competition
Know your competitor’s product or service
Produce your product better and have better service!
Management
Successful businesses are usually managed well
Poor management is one of the main reasons for business failure
Entrepreneurships need skills: reading, writing, listening, speaking, and MATH (setting prices to calculating payroll)