2Learning Objectives After completing this chapter, you’ll be able to: Describe an entrepreneurship and a small business.List the advantages and disadvantages of entrepreneurship.continued
3Learning 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.
4Why It’s ImportantEntrepreneurs and small businesses bring vital energy and innovation to the economy.The risks involved energize entrepreneurs and small business owners to become successful.
5Key Words entrepreneurship virtual business or dot-com company small businessentrepreneurrisk takerprofit
6The Ins and Outs of Entrepreneurship Entrepreneurships and small businesses are the majority of business firms.
7The Ins and Outs of Entrepreneurship An entrepreneurship is a business started by someone who notices a need for a product or service.
8The Ins and Outs of Entrepreneurship A virtual business or a dot-com company is a business that operates on the Internet.
9Online FinanceSome 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.continued
10When LENDX started, their first six employees worked for shares of company stock only. AnalyzeWhy would its employees work without a salary?
11Take this quiz and see if you would be a good entrepreneur. Figure5.1ARE 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 new25 and under = you take fewer risks
12The 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.
13The 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.
15Advantages of Entrepreneurship There are many advantages to being an entrepreneur, including:Satisfaction from taking a risk and becoming a successShowing expertise and skillscontinued
16Advantages of Entrepreneurship Working from homeGaining profitProfit is the money left over after a business has paid all costs of producing its goods or services.
17Disadvantages of Entrepreneurship The disadvantages to being an entrepreneur are:Long hoursTotal responsibility for the businessFinancial risks
18Disadvantages of Entrepreneurship The main reason why entrepreneurships fail is that they run out of money.
19What are some characteristics of entrepreneurs? Fast ReviewWhat are some characteristics of entrepreneurs?What are three advantages of an entrepreneurship?continued
20What are some disadvantages of an entrepreneurship? Fast ReviewWhat are some disadvantages of an entrepreneurship?What is the main reason that entrepreneurships fail?
21Small 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.
22Small 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.
23Small Business: What You Need to Know Small businesses employ more than 50 percent of the total workforce in the United States.
24Small Business: What You Need to Know Small businesses generate more than half the nation’s income.They are the principal source of new jobs.
25Making 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?continued
26Making 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?
27Small Business: What You Need to Know Small businesses account for about 38 percent of jobs in high technology.
28There are 25 million small businesses in the United States. Figure5.2SMALL BUSINESS EMPLOYMENT IN THE UNITED STATESThere are 25 million small businesses in the United States.Which three types of small businesses provide the most jobs?
29Advantages of Small Business Some of the advantages of owning a small business are:Being the bossOffering services large companies cannot offerEase of formation
30Disadvantages 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.
31Disadvantages of Small Business About four out of five small businesses fail in their first five years.
32Disadvantages of Small Business Small business owners may mistake the freedom of being in business for oneself for the liberty of working or not.
33Disadvantages 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.
34Disadvantages of Small Business The following are three specific reasons why a small business might not work:continued
35Disadvantages of Small Business Why a small business might not work:1. Effect of ChangeConsumers’ tastes change. If flexibility and change are not part of the business, then it’s likely to fail.
36Disadvantages of Small Business Why a small business might not work:2. Managerial Skills NeededA small business owner must have multiple skills including:FinancingEmployee relationscontinued
37Disadvantages of Small Business Managerial Skills NeededProductionCustomer Relations
38Disadvantages of Small Business Why a small business might not work:3. Inadequate Financial PlanningStarting with little money, spending carelessly, borrowing money without planning, and forgetting about taxes and insurance may result in a failure.
39Fast ReviewHow does the Small Business Administration (SBA) define a small business?continued
40Fast ReviewGive an example of a service that a small business may offer that a large company cannot offer.continued
41Which is more difficult to form: a large business or a small business? Fast ReviewWhich is more difficult to form: a large business or a small business?Give examples of special skills that a small business owner needs.continued
42List two financial reasons that small businesses fail. Fast ReviewList two financial reasons that small businesses fail.
43Preparing for Your Own Business A business plan is a written description of a new business venture that describes all aspects of the business.
44Checklist 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?continued
45Checklist 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?continued
46Checklist for Starting a Venture What licenses, permits, or other legal documents do I need?How much money will I need to get started?
47Parts of a Business Plan The essential parts of the business plan are:SummaryCompany descriptionProducts and servicescontinued
48Parts of a Business Plan Marketing planLegal planManagement and operating planFinancial plan
49Business 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.continued
50Business 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.continued
51Business Building Blocks Elements of a Business Plan The management plan and operating plan detail the company’s key personnel.Complete a financial plan.continued
52Business Building Blocks Effective Business Plan Tips for Writing anEffective Business PlanBe 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.
53Name the essential elements of a business plan. Fast ReviewWhat is a business plan?Name the essential elements of a business plan.
54What makes a person an entrepreneur? What makes a company successful?continuedcontinued
55Identify some reasons why a small business might be hard to manage. What are some benefits of selling online?
56Entrepreneurship and Small Business 5End of ChapterEntrepreneurship and Small Business