Presentation on theme: "Foundations of Business 3e"— Presentation transcript:
1Foundations of Business 3e Pride, Hughes, & Kapoor
2Small Business, Entrepreneurship, and Franchises Chapter5
3Learning 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.
4Small Business: A Profile A business that is independently owned and operated for profit and is not dominant in its fieldSBA developed specific “smallness” guidelines for various industries
6Small Business: A Profile (cont.) Small-business sectorThere are about 26.9 million businesses in the U.S.Just over 17,000 employ more than 500 workers.In the last decade, the number of small businesses increased 49%.Part-time entrepreneurs have increased fivefold and account for one-third of all small businesses.70% of new businesses survive at least two years, about 50% survive at least five years, and 31% survive at least seven years.The primary reason for these failures is due to poor management stemming from a lack of business know-how.Small businesses provide over 50% of the jobs in the U.S.
7Industries That Attract Small Businesses Attractive small-business industry characteristicsLow initial capital investmentSome special skill requirementsHigh growth and profit potentialIndustries that attract small businessesDistribution—retailing, wholesaling, transportation, and communications (about 33% of all small businesses)Service—medical and dental care; watch, shoe, and TV repairs; haircutting and styling; restaurant meals; dry cleaning; financial services (over 48% of all small businesses)Production—construction, mining, and manufacturing (about 19% of all small businesses)
8The People in Small Businesses: The Entrepreneurs Characteristics and other personal factorsThe “entrepreneurial spirit”The desire for independenceThe desire to determine one’s own destinyThe willingness to find and accept a challengePersonal backgroundAgeMotivation“Had enough” of working for someone elseHigh-tech opportunities, especially for teensLosing a job and deciding to start a businessAn idea for a new productAn opportunity presents itself
10The People in Small Businesses: The Entrepreneurs (cont.) WomenOwned at least 50% of small businesses in 2008Own 66% of home-based businesses, over 40% for twelve years or more; less risk of failure than average9.1 million businesses in the U.S. provide almost million jobs and generate $3.6 trillion in salesTeenagersHigh-tech entrepreneurship is explodingFace unique pressures juggling schoolwork, social lives, business workloadNeed skills for planning, persistence, patience, people management, generating profit
11Why Some Entrepreneurs and Small Businesses Fail Lack of capital and cash-flow problemsLack of management skillsOverexpansion
12U.S. Business Start-ups, Closures, and Bankruptcies Source: Small Business Administration, Office of Advocacy, Frequently Asked Questions,fi les/fi les/sbfaq.pdf (accessed March 15, 2011).
13The Importance of Small Businesses in Our Economy Providing technological innovationInnovation among small-business workers is higher than among workers in large businessesSmall firms produce 2.5 times as many innovations as large firms relative to the number of persons employedMore than half of the major technological advances of the 20th century originated with individual inventors and small businessesInventions may spark new industries or contribute to established industries
14The Importance of Small Businesses in Our Economy (cont.) Providing employmentSmall firms hire a larger proportion of younger and older workers, women, and part-time workersSmall businesses provide 67% of workers with their first job and initial job skillsSmall businesses represent 99.7% of all employers and employ over 50% of the private work forceSmall businesses provide two-thirds of the net new jobs added to the economy
15The Importance of Small Businesses in Our Economy (cont.) Providing competitionSmall firms can compete with large firms, forcing the larger firm to become more efficient and responsive to customer needsFilling needs of society and other businessesSmall firms can meet the special needs of smaller groups of customersSmall firms can act as specialized suppliers of goods and services to larger businesses
16The Pros and Cons of Smallness AdvantagesPersonal relationships with customers and employeesAbility to adapt to changeSimplified recordkeepingIndependenceAdvantages of sole proprietorshipsKeeping all profitsEase and low cost of going into businessKeeping business information secretDisadvantagesRisk of failureLimited potentialLimited ability to raise capital
18Developing a Business Plan Business plan—a carefully constructed guide for the person starting a businessThree basic purposesCommunicationManagementPlanningBanking officials’ and investors’ questionsWhat is the nature and mission of the new venture?Why is it a good idea?What are the goals?How much will it cost?
20The Small Business Administration A governmental agency that assists, counsels, and protects the interests of small business in the U.S.SBA management assistanceManagement courses and workshopsService Corps of Retired Executives (SCORE)Help for minority-owned small businessesSmall-business institutes (SBIs)Small-business development centers (SBDCs)SBA publications
21The Small Business Administration (cont.) SBA financial assistanceRegular business loansLoans made by private banks but partially guaranteed by the SBASmall-business investment companiesVenture capital: money invested in small firms that have the potential to become very successfulSmall-business investment companies: privately owned firms that provide venture capital to small enterprises that meet their investment standards
22The Small Business Administration (cont.) State of small business during the recessionAmong the segments of society hardest hitLayoffsClosuresGovernment assistance to improve market conditionsAmerican Recovery and Reinvestment ActAffordable Care ActNew tax cuts and creditsSBA loans with favorable terms
23Franchising Franchise Franchising Franchisor Franchisee A license to operate an individually owned business as though it were part of a chain of outlets or storesFranchisingThe actual granting of a franchiseFranchisorAn individual or organization granting a franchiseFranchiseeA person or organization purchasing a franchise
24Basic Rights & Obligations Delineated in a Franchise Agreement
25Types of FranchisesA manufacturer authorizes retailers to sell a certain brand-name item.A producer licenses distributors to sell a product to retailers.A franchisor supplies brand names, techniques, or services instead of a complete product.
26The Growth of Franchising Franchising has expanded with the growth of the fast-food industry.Franchising is attracting more women and minority business owners than ever before.Dual-branded franchising, in which two franchisors offer their products together, is a new trend.
27The Growth of Franchising (cont.) Are franchises successful?The success rate for franchises is significantly higher than that for other small businesses.The vast majority, 94%, of franchise owners report that they are successful.Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail.
28Entrepreneur’s Ten Franchises in 2011 Source: (accessed March 15, 2011).
29Advantages of Franchising To the franchisorFast and well controlled distribution of its productsNo need to construct and operate its own outletsMore working capital available for expanded production and advertisingFranchising agreements maintain product and quality standardsMotivated work force of franchiseesTo the franchiseeOpportunity to start a proven business with limited capitalGuaranteed customersFranchisor available for advice and guidanceMaterials for local promotional campaigns and participation in national campaignsCost savings when purchasing in cooperation with other franchisees
30Disadvantages of Franchising To the franchisorFailure of the franchisee to operate franchise properlyDisputes with and lawsuits by franchisees over the terms of the franchiseTo the franchiseeFranchisor retains a large amount of control over the franchisee’s activitiesFranchisor opening competing franchises within the franchisee’s market
31Global Perspectives in Small Business National and international economies grow more interdependent as trade barriers diminish.Instant communication shrinks distances and expands business opportunities.The Internet is the favored strategy for growth for small businesses.Technology provides leverage and power to reach markets previously limited to large corporations.The SBA offers counseling on how and where to market overseas.Small businesses must adapt to demographic and economic changes in the world marketplace.