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Chapter 3 1 Understanding Entrepreneurship and Business ownership. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall.

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Presentation on theme: "Chapter 3 1 Understanding Entrepreneurship and Business ownership. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall."— Presentation transcript:

1 Chapter 3 1 Understanding Entrepreneurship and Business ownership. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

2 2 WHAT IS A SMALL BUSINESS? Independently owned and managed business that does not dominate (الهيمنة)(control) its market.Independently owned and managed business that does not dominate (الهيمنة)(control) its market. Two different factors sometimes identify small businessesTwo different factors sometimes identify small businesses 1.No. of employees (Usually less than a 100) 2.Total annual sales (المبيعات السنوية) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

3 3 THE IMPORTANCE OF SMALL BUSINESS IN THE ECONOMY Job Creation ( خلق فرص عمل ): Job Creation ( خلق فرص عمل ): Small business are an important source of new jobs. Although small business creates many new jobs, they are more unstable. Innovation ( الابداع ): Innovation ( الابداع ): Many small businesses either create something entirely new or improve ( يحسن )a product that already exists. Some new products which were developed by small businesses were the radio, the jet engine, and the personal computer. Importance to Big Business: Importance to Big Business: Small businesses supply raw materials to big business Small businesses sell big businesss products. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

4 4 POPULAR AREAS OF SMALL BUSINESS ENTERPRISE The more resources needed the harder it is to start a business, and the less likely an industry is dominated by small businesses. Popular Areas ( المناطق الشعبية ) Services (e.g. tailor, hairdresser) Retailers( باعة ) (e.g. cold store, clothes shop) Construction( البناء ). (small house builders) Finance and insurance. Transporting. (e.g. Taxi, private jet) Wholesaling( البيع بالجمله ). (Buy products in large quantities, then sell them in smaller amounts) Manufacturing (التصنيع). (e.g. carpenters ) Most Popular More capital required to start the business Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

5 5 Entrepreneurship Entrepreneur ( منظم ): risks Accepts the risks and opportunities ( المخاطر والفرص ) of creating, operating and growing a new business. Small Business Owner: Does not have plans for growth. Happy with his business and level of profits 5Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

6 Entrepreneurial characteristics Entrepreneurial characteristics. Small-business ownership VS Entrepreneurship. –Vision. الرءيه. –Aspiration (Goal). طموح (هدف). –Strategy. الاستراتيجيه (Entrepreneurs have a broad dream ( حلم واسع ), high ambition ( عالية الطموح ), and a different strategy for business growth. Entrepreneurs have a strong desire( رغبة ) (really want) to be their own boss. Entrepreneurs take more risks. 6Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

7 Creating a business plan. Business Plan: Business Plan: Document were the entrepreneur summarizes her or his business strategy ( استراتيجية الأعمال ) for proposed new venture and how that strategy will be implemented. 7Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

8 Business plan A Business plan includes the following –Goals and Objectives (الأهداف والغايات): 1.What are our goals and objectives? 2.What strategies will be used to achieve them? 3.How these objectives will be implemented? –Revenue Forecasting(الايرادات التنبؤ): Understand current market, how will we compete, and estimate ( التقدير ) our revenue. –Financial Planning(التخطيط المالي) : Identify how much is needed to start the company, and how much required before we start making a profit (Cash budget). Prepare Income statements, balance sheets… 8Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

9 Getting Started Starting From Scratch Buying an Existing Business 9Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

10 10 1. BUYING AN EXISTING BUSINESS The main advantages to buying an existing business is that the business already has customers and is making a profit The location of the business is known, there will be existing inventory of products customers are willing to buy, and existing staff who know the products. The existing business also has a relationship with lenders of money, suppliers, and the community in which it operates. We have existing record ( القائمة سجل ) of the business performance, rather than estimate ( التقدير ) of a new business prospect. Starting the small Business (1): Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

11 11 2. STARTING A NEW BUSINESS (1) Advantages: A new business does not suffer ( لا يعاني ) from the mistakes of the previous owner The start-up owner is free to choose lenders of money, location, inventory, suppliers, equipment and staff Disadvantages: The risks of starting a new business are greater than those of buying an existing business. The business starter have only projections ( التوقعات )about their prospects. New business owners must identify a genuine (real) business opportunity( فرصة تجارية ) – a product for which many customers will pay well but that is not currently available in the market. Starting the small Business (2): Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

12 12 2: STARTING A NEW BUSINESS (2) Entrepreneurs who want to start a new business must study the market and answer the following questions: Who are my customers? Where are they? At what price will they buy my product? In what quantities will they buy my product? Who are my competitors in the market? How will my product differ from those of my competitors? Starting the small Business (3): Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

13 13 FRANCHISING(الامتياز) Franchise: Arrangement in which a buyer (franchisee) purchases the right to sell the good or service of the seller (franchiser) e.g. McDonalds, Sheraton Hotel They are franchises of a large parent company. The parent company gives licenses to local owners to sell the product and use the name of the parent company. The parent company will help the local owner start the franchise. The parent company may help choose the location of the new franchise, design the store, train new staff, and help with financing for equipment and the lease or purchase of the property where the franchise will be located. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

14 Franchising: Advantages and Disadvantages Advantages Doesnt have to build business from scratch Failure is less likely Access to management expertise Disadvantages Start-up costs (eg. High fee) On-going payments Management rules and restrictions 14Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

15 Reasons for Success and Failure Failure (63% of new businesses will not see their sixth birthday) –Poor management –Neglect ( الاهمال ) –Weak control systems –Insufficient capital ( وعدم كفاية رأس المال ) Success Hard work, drive, dedication ( الإخلاص )Hard work, drive, dedication ( الإخلاص ) Market demandMarket demand Strong managementStrong management Luck!!! ( الحظ )Luck!!! ( الحظ ) 15Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

16 16 TRENDS IN SMALL-BUSINESS START-UPS(1): Many business are started every year, this trend caused by many factors, some of these are: Emergence ( ظهور ) of E-Commerce: the internet provides an easy and new way of doing business, this made many entrepreneurs create and expand new business.(eBay, Amazon) Crossovers from big businesses: many employees left or lost their jobs in big business and tried to start there own small ones, some failed but the others succeed. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

17 17 TRENDS IN SMALL-BUSINESS START- UPS (2): Opportunities for minorities and women( الفرص للأقليات والمراه ): more small businesses are also started by minorities (like African Americans, Asians) and women. They like to be their own bosses, setting their own hours, and control their own destinies. Global opportunities( الفرص العالمية ): many new found opportunities are found in foreign countries. Like factories moving their operations to Asia for cheaper labor. Better survival rate( معدل البقاء ): the small business failure rate has declined, that encourage many people to start up businesses. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

18 18 Non-corporate business ownership. All business owners must decide which form of legal organization best suits their goals a Sole Proprietorship, وحيد الملكيه ، a Partnership, شراكة ، a Corporation. شركة Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

19 Sole Proprietorships Business owned and usually operated by one person who is responsible for all of its assets. ( (رأس مال Advantages: Freedom. Simple to form. Low start up costs. Tax ( الضرائب )benefits. Disadvantages: Unlimited Liability. Limited resources and fundraising.(one persons money and knowledge) Lack of continuity. (when owner dies, business dies) Unlimited Liability ( المسؤولية الغير محدودة) Legal principle holding owners responsible for paying off all debts of a business Unlimited Liability ( المسؤولية الغير محدودة) Legal principle holding owners responsible for paying off all debts of a business 19Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

20 Partnerships Two or more owners who all share in the operation of the company and the financial responsibility for its debts. Advantages: More talent ( المواهب ) and money More fundraising capability Relatively easy to form Tax benefits Disadvantages: Unlimited liability Disagreements among partners Lack of continuity 20 Unlimited Liability ( المسؤولية الغير محدودة) Legal principle holding all partners responsible for paying off all debts of a business. Unlimited Liability ( المسؤولية الغير محدودة) Legal principle holding all partners responsible for paying off all debts of a business. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

21 Alternatives to General Partnerships Alternatives to General Partnerships: Limited Partnerships: This where a partnership has limited and active partners. Limited partner: Partner who does not share in a firms management and is liable for its debts only to the limits of said partners investment. Active (general partner): Partner who actively manages a firm and who has unlimited liability for its debts. 21Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

22 22 Corporations: Business that is legally considered an entity separate from its owners and is liable for its own debts. (Considered as an individual person) Advantages: Limited Liability. Continuity.( الاستمراريه ) Stronger fundraising capability. Disadvantages: Double taxation. control. Complicated and expensive to form. Limited Liability ( المسؤولية محدودة) Personal assets are separated from business assets in liability. Limited Liability ( المسؤولية محدودة) Personal assets are separated from business assets in liability. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

23 Corporations 23 Business that is legally considered an entity separate from its owners and is liable for its own debts. What does this mean? Corporations can sue ( مقاضاة ) and be sued in a court of law. buy, hold, and sell property. make and sell products to consumers. commit crimes ( ارتكاب جرائم ) and be tried and punished ( يعاقب ) for them (just like a real person.) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

24 Types of Corporations Closely Held (Private) Corporation:Closely Held (Private) Corporation: Corporation whose stock is held only by a few people and is not available for sale to the general public. Publicly Held (Public) CorporationPublicly Held (Public) Corporation: Corporation whose stock is held by many and available for sale to the public. Limited Liability Corporation (LLC):Limited Liability Corporation (LLC): A mix of publicly held corporation and a partnership in which owners are taxed as partners but have the benefit of limited liability. 24Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

25 25 MANAGING A CORPORATION Corporations must be managed according to corporate governance (ادارة الشركات) : It is the roles of: The shareholders The directors And the other managers in corporate decision making. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

26 Corporate Governance Hierarchy: Officers Board of Directors Stockholders 26Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

27 27 1. STOCK OWNERSHIP Corporations sell shares in the company – called stock ( المخزون ) – to investors. These investors are called stockholders, They are the owners of the corporation Profits are distributed among stockholders in the form of dividends( أرباح الأسهم ) or earnings. Stockholders can buy two types of stock – preferred stock and common stock Preferred Stock: Stock that gives holders fixed dividends (الحصص) and priority (الأولوية) claims over assets but no corporate voting rights. Common Stock: Gets dividends if company makes profit, stockholders have corporate rights, and has last claims over assets. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

28 28 2- BOARD OF DIRECTORS (1) By law, the governing body of the corporation is the board of directors( مجلس الادارة ). The board of directors set the policies for the corporation, decide on major spending or investments, set salaries and benefits for senior managers, and report the firms financial position to the shareholders through the annual report – a summary of the firms financial health. The members of the board of directors are legally responsible ( مسؤولة قانونا )for the actions of the corporation and may be held liable under the law for any illegal acts committed by the corporation. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

29 29 2- BOARD OF DIRECTORS (2) The members of the board of directors may not all be involved in the day-to-day operation of the corporation. Instead, they hire a team of mangers to run the firm. These managers are called officers of the corporation. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

30 30 3- OFFICERS The team of managers known as the officers of the company runs the firm on a day-to-day basis. The top manager may be called the chief executive officer or CEO. He or she is responsible for the firms overall performance. Managers reporting to the CEO may be called president, vice president, or general manager Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall


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