1. 5
Chapter
Entrepreneurship and
Small Business pp

2. Learning Objectives After completing this chapter, you’ll be able to:
Describe an entrepreneurship and a small business.
List the advantages and disadvantages of entrepreneurship.
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3. Learning Objectives After completing this chapter, you’ll be able to:
Recognize the advantages and disadvantages of a small business.
Explain why small businesses may fail.

4. Why It’s Important
Entrepreneurs and small businesses bring vital energy and innovation to the economy.
The risks involved energize entrepreneurs and small business owners to become successful.

5. Key Words entrepreneurship virtual business or dot-com company
small business
entrepreneur
risk taker
profit

6. The Ins and Outs of Entrepreneurship
Entrepreneurships and small businesses are the majority of business firms.

7. The Ins and Outs of Entrepreneurship
An entrepreneurship is a business started by someone who notices a need for a product or service.

8. The Ins and Outs of Entrepreneurship
A virtual business or a dot-com company is a business that operates on the Internet.

9. Online Finance
Some new Internet businesses are able to hire people without paying them a salary. LENDX Inc., based in San Francisco, Calif., serves as an online financial hub for businesses interested in leasing or buying equipment.
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10. When LENDX started, their first six employees worked for shares of company stock only.
Analyze
Why would its employees work without a salary?

11. Take this quiz and see if you would be a good entrepreneur.
Figure
5.1
ARE YOU ORIGINAL?
Below are traits of an entrepreneur. Rate yourself by choosing a number that best describes you. At the end you’ll add up your points to see how you fared (1 is the lowest, 5 is the highest).
Take this quiz and see if you would be a good entrepreneur.
Rate your score:
35-40 points = true entrepreneur
= willing to take risks and try something new
25 and under = you take fewer risks

12. The Ins and Outs of Entrepreneurship
An entrepreneur is a person who recognizes a business opportunity and organizes, manages, and assumes the risks of a business enterprise, with the intent of increasing the market value of the business.

13. The Ins and Outs of Entrepreneurship
Entrepreneurs are take-charge, self-directed people.
Often an entrepreneur is a risk taker, or someone who likes to take risks.

14. Successful Entrepreneurs
Graphic Organizer
Successful Entrepreneurs
Recognize
opportunities
Desire
achievement
Have high
energy
Want to
control
destiny
Successful
Entrepreneurs
Take
risks
Desire to
earn profit
Are
determined
Are
enthusiastic
Have self-
confidence

15. Advantages of Entrepreneurship
There are many advantages to being an entrepreneur, including:
Satisfaction from taking a risk and becoming a success
Showing expertise and skills
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16. Advantages of Entrepreneurship
Working from home
Gaining profit
Profit is the money left over after a business has paid all costs of producing its goods or services.

17. Disadvantages of Entrepreneurship
The disadvantages to being an entrepreneur are:
Long hours
Total responsibility for the business
Financial risks

18. Disadvantages of Entrepreneurship
The main reason why entrepreneurships fail is that they run out of money.

19. What are some characteristics of entrepreneurs?
Fast Review
What are some characteristics of entrepreneurs?
What are three advantages of an entrepreneurship?
continued

20. What are some disadvantages of an entrepreneurship?
Fast Review
What are some disadvantages of an entrepreneurship?
What is the main reason that entrepreneurships fail?

21. Small Business: What You Need to Know
The Small Business Administration (SBA) defines a small business as an independently owned business that usually has the owner as its manager.

22. Small Business: What You Need to Know
A small business serves a limited geographic area, employs fewer than 500 people, and is not dominant in its industry.

23. Small Business: What You Need to Know
Small businesses employ more than 50 percent of the total workforce in the United States.

24. Small Business: What You Need to Know
Small businesses generate more than half the nation’s income.
They are the principal source of new jobs.

25. Making an Ethical Decision
Are all employees—even those in small businesses—entitled to job benefits?
If you were an employee, what kind of benefits would you want?
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26. Making an Ethical Decision
If you were an employer, what benefits would you want to offer and why? What other job “perks” could you offer your employees that would not directly cost money?

27. Small Business: What You Need to Know
Small businesses account for about 38 percent of jobs in high technology.

28. There are 25 million small businesses in the United States.
Figure
5.2
SMALL BUSINESS EMPLOYMENT IN THE UNITED STATES
There are 25 million small businesses in the United States.
Which three types of small businesses provide the most jobs?

29. Advantages of Small Business
Some of the advantages of owning a small business are:
Being the boss
Offering services large companies cannot offer
Ease of formation

30. Disadvantages of Small Business
When you’re a small business owner, you’re responsible for decisions.
You often work long hours and have great financial responsibility.

31. Disadvantages of Small Business
About four out of five small businesses fail in their first five years.

32. Disadvantages of Small Business
Small business owners may mistake the freedom of being in business for oneself for the liberty of working or not.

33. Disadvantages of Small Business
A small business may underprice or overprice goods or services.
Going into business with little or no experience may result in the business closing.

34. Disadvantages of Small Business
The following are three specific reasons why a small business might not work:
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35. Disadvantages of Small Business
Why a small business might not work:
1. Effect of Change
Consumers’ tastes change. If flexibility and change are not part of the business, then it’s likely to fail.

36. Disadvantages of Small Business
Why a small business might not work:
2. Managerial Skills Needed
A small business owner must have multiple skills including:
Financing
Employee relations
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37. Disadvantages of Small Business
Managerial Skills Needed
Production
Customer Relations

38. Disadvantages of Small Business
Why a small business might not work:
3. Inadequate Financial Planning
Starting with little money, spending carelessly, borrowing money without planning, and forgetting about taxes and insurance may result in a failure.

39. Fast Review
How does the Small Business Administration (SBA) define a small business?
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40. Fast Review
Give an example of a service that a small business may offer that a large company cannot offer.
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41. Which is more difficult to form: a large business or a small business?
Fast Review
Which is more difficult to form: a large business or a small business?
Give examples of special skills that a small business owner needs.
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42. List two financial reasons that small businesses fail.
Fast Review
List two financial reasons that small businesses fail.

43. Preparing for Your Own Business
A business plan is a written description of a new business venture that describes all aspects of the business.

44. Checklist for Starting a Venture
Some questions to consider before starting your own business are:
What will I produce?
Who are my main competitors?
Why is my product needed?
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45. Checklist for Starting a Venture
How much will my product cost to produce?
How many people will I need to run the business?
What physical facilities will I need?
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46. Checklist for Starting a Venture
What licenses, permits, or other legal documents do I need?
How much money will I need to get started?

47. Parts of a Business Plan
The essential parts of the business plan are:
Summary
Company description
Products and services
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48. Parts of a Business Plan
Marketing plan
Legal plan
Management and operating plan
Financial plan

49. Business Building Blocks Elements of a Business Plan
The summary is a one- to three-page overview of the plan.
The company description explains the type of company.
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50. Business Building Blocks Elements of a Business Plan
Describe products or services in the products and services section.
The marketing plan describes your customers and your competition.
A legal plan points out how you will organize your company.
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51. Business Building Blocks Elements of a Business Plan
The management plan and operating plan detail the company’s key personnel.
Complete a financial plan.
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52. Business Building Blocks Effective Business Plan
Tips for Writing an
Effective Business Plan
Be brief and relevant.
Don’t inflate the importance or possible success of your business.
“Write short and be honest,” is a good rule of thumb.

53. Name the essential elements of a business plan.
Fast Review
What is a business plan?
Name the essential elements of a business plan.

54. What makes a person an entrepreneur?
What makes a company successful?
continued
continued

55. Identify some reasons why a small business might be hard to manage.
What are some benefits of selling online?

56. Entrepreneurship and Small Business5
End of Chapter
Entrepreneurship and Small Business