Presentation on theme: "Small Business, Entrepreneurship, and Franchises"— Presentation transcript:
1 Small Business, Entrepreneurship, and Franchises Chapter 5Small Business, Entrepreneurship,and Franchises
2 Learning ObjectivesDefine what a small business is and recognize the fields in which small businesses are concentrated.Identify the people who start small businesses and the reasons why some succeed and many fail.Assess the contributions of small businesses to our economy.Judge the advantages and disadvantages of operating a small business.Explain how the Small Business Administration helps small businesses.Appraise the concept and types of franchising.Analyze the growth of franchising and franchising’s advantages and disadvantages.
3 Small Business…one that is independently owned and operated for profit and is not dominant in its field.
4 Table 5.1: Industry Group Size Standards Small-business size standards are usually stated in number of employees or average annual sales. In the United States, 99.7 percent of all businesses are considered small.Source: accessed May 4, 2009.
5 Establish a Small Business 4 days and $210StepsRegister nameApply for tax IDsSet up insuranceUnemploymentWorkers’ compensation
6 Table 5.2: Establishing a Business Around the World Source: World Bank (2004); as found in Inside the Vault, Federal Reserve Bank of St. Louis, Fall 2004, p. 1.
7 U.S. Small Business in Last Decade Number up 49%Record-breaking new-business formation in last few yearsNearly 637,000 new incorporationsPart-time entrepreneurs up 5-fold (equal 1/3 of small businesses)Provides more than 50% of jobs56% of new businesses fail in first 4 years
8 Industries That Are and Are Not Attractive to Small Business Attractive: Growing industries with profit potential (such as outpatient-care facilities)Not attractive: Industries requiring a huge investmentAuto manufacturingMachinery
10 Top Small Business Categories Distribution: 33% small businessRetailingWholesalingTransportationCommunicationsService: 48% small businessMedical/dentalWatch/TV/shoe repairHaircutting/stylingRestaurantsDry cleaningFinancial servicesProduction: 19% small businessConstructionMiningManufacturing
11 Percent of People Who Would Prefer Being an Entrepreneur U.S.A. = 70%Western Europe = 46%Canada = 58%
12 Entrepreneurial Spirit “Desire to create a new business”Small businesses are managed by people who start and own themOwners could be employed elsewhere if they wantedOwners would rather take risk of starting and operating ─ even if they’ll make less money
13 Other Factors Driving Entrepreneurs IndependenceDesire to determine own destinyWillingness to find/accept challengeComing from family of entrepreneursAge = 24 – 44
14 Figure 5.1: How Old Is the Average Entrepreneur? People in all age groups become entrepreneurs, but more than 70 percent are between 24 and 44 years of age.Source: Data developed and provided by the National Federation of Independent Business Foundations and sponsored by the American Express Travel Related Services Company, Inc.
15 5 P’s of Entrepreneurship Planning Persistence Patience People Profit
16 Motivation to Start a Business “Enough” of working/earning profit for someone elseLoss of jobNew idea for product or salesSudden opportunity
17 Table 5.3: U.S. Business Start-ups, Closures, and Bankruptcies Source: U.S. Department of Commerce, Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Department of Labor, Employment and Training Administration, Small Business Administration, Office of Advocacy, Frequently Asked Questions, September 2008, accessed October 4, 2008, and SBAQuarterly Indicators, First Quarter 2009, released May 8, 2009, p. 1.
18 Women-Owned Businesses Population = 51%Small businesses = 50%Home-based businesses = 66%Businesses = 10.4 millionJobs = 7.1 millionSales = $941 billionPayroll = $174 billionIn business 12+ years = 40%
19 Entrepreneur Must Manage Finances Personnel Day-to-day operations HandleSalesAdvertisingPurchasingPricingOther
20 Why Small Businesses Fail Lack of capitalLack of management skillsLack of planningOverexpansion
21 Technical InnovationNew ways to do a job with less effort for less moneySmall business vs. large:2.5 times innovation per employee41% of high-tech workers13–14 times more patentsMany inventions that sparked new industries
22 Small Firms and Employment U.S. economy created 3+ million jobs70% in small-business-dominated industriesBusiness services = leisure, hospitality, special trade contractorsSmall firms hire greater proportion ofYounger/older workersWomenPart-time employeesWorker’s first job = 67%Initial on-the-job training
23 SBA Statistics on Small Businesses Employers = 99.7%Private work force = 50%Net new jobs = 60–80%
24 Small Businesses Provide Competition Challenge large firmsForce big firms to beMore efficientMore responsive to customer
25 Small Businesses Fill Needs Satisfy niche consumersProvide variety of goods/services to other businesses (outsourcing)
26 Advantages of Smallness Personal relationshipsAbility to adapt to changeSimplified record keepingIndependence
27 Disadvantages of Small Business Risk of failureLimited potentialLimited ability to raise capital
28 Weekly Hours Worked by Small Business Owners Source: Inc. Magazine, “It’s Good to Be King,” December 2003, p. 32.43%19%38%Fewer Than 3535 to 50More Than 50
29 Figure 5.2: Sources of Capital for Entrepreneurs Small businesses get financing from various sources; the most important is personal savings.Source: Data developed and provided by the National Federation of Independent Business Foundations and sponsored by the American Express Travel Related Services Company, Inc..
30 …a carefully constructed guide for the person starting a business. Business Plan…a carefully constructed guide for the person starting a business.
31 Business Plan Purposes Communication ─ helps potential investors decide whether to invest in new ventureManagement ─ helps track, monitor, evaluate progressPlanning ─ guides businessperson through business phases
32 Table 5.4: Components of Business Plan Source: Adapted from Timothy S. Hatten, Small Business Management: Entrepreneurship and Beyond, 3d ed. (Boston: Houghton Mifflin, 2006), pp. 108–120.
33 Business Plan Should Answer What is the nature/mission of new venture?Why is it a good idea?What are the businessperson’s goals?How much will it cost?
34 Table 5.5: Business Plan Checklist Source: Kathleen R. Allen, Launching New Ventures: An Entrepreneurial Approach, 4th ed. (Boston: Houghton Mifflin, 2006), p. 197.
35 Small Business Administration (SBA) …a government agency that assists, counsels, and protects the interests of small businesses in the United States.
37 SBA ResourcesManagement courses/workshopsService Corps of Retired Executives (SCORE)Help for minority-owned businessesSmall Business InstitutesSmall Business Development CentersPublications
38 SBA Financial Assistance Regular business loansSmall-business investment companies
39 Venture Capital…money that is invested in small (sometimes struggling) firms that have the potential to become very successful.
40 Franchise…a license to operate an individually owned business as though it were part of a chain of outlets or stores.
41 What Is Franchising? Franchise Agreement Franchisor FranchiseeFranchisorJohn Q.
42 Types of FranchisingManufacturer authorizes retail store to sell brand-name itemProducer licenses distributors to sell given product to retailersFranchisor supplies brand names, techniques, or other services instead of complete product
43 Table 5.7: Entrepreneur’s Top Ten Franchises (2009) Source: accessed May 11, 2009, with permission of Entrepreneur.com, 2009 by Entrepreneur.com, Inc. All rights reserved.
44 Dual-Branded Franchise …two franchisors offer their product together...
45 Advantages of Franchising FranchisorFast/well-controlled distribution of productsNo high cost of construction/ operationHighly motivated franchiseeFranchiseeAbility to start business with limited capitalAccess to others’ business experienceNationally recognized nameLocal and national advertising
46 Disadvantages of Franchising FranchiseeContract dictating every aspect of businessLawsuit by franchisor for violation of contract
47 Qualities Franchisors Seek in Franchisee Entrepreneur, “The 28th Annual Franchise 500- Top 10 Franchises for 2007”, January 2007, p. 128.47
48 Global Perspectives in Small Business Internet most favored growth strategy = 50+%Technology gives reach/powerU.S. Commercial Service ─ aids small and medium-sized businesses in selling overseasBusinesses must adapt to demographic/economic changes in world marketplace
49 Chapter Quiz1. A government agency that was created to assist, counsel, and protect the interests of small businesses in the United States is calledSmall Business Institutes.Small Business Investment Companies.the Small Business Administration.Small Business Development Centers.Small Business Guidance Centers.
50 Chapter Quiz (cont.)2. Small businesses cluster in which of the following industries?Service industriesDistribution industriesProduction industriesFinancial industriesAll of the above
51 Chapter Quiz (cont.)3. A group of retired businesspeople who volunteer their time to help small-business owners is known asSCORE.ACE.SBDC.SBI.SBIC.
52 Chapter Quiz (cont.)4. A privately owned company that provides venture capital to small firms is a(n)small-business association.small-business investment company.small-business institute.active corps of executives.small-business development center.
53 Chapter Quiz (cont.) 5. One advantage of a small business is no risk of failure.unlimited potential for employers.personal relationships with customers and employees.unlimited potential for employees.limited ability to raise capital.