1. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 1 Small Business, Entrepreneurship, and Franchises

2. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 2 The Small Business Independently owned and operated Not dominant in its field Relatively small annual sales Fewer than 500 employees

3. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 3 Economic Roles of Small Business Provide jobs Introduce new products Service large corporations Engage in specialization

4. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 4 Types of Small Business LifestyleHigh-Growth Run by Individuals Run by Individuals Limited Products/Services Limited Products/Services Limited Resources Limited Resources Limited Marketplace Limited Marketplace Run by Teams Run by Teams Multiple Products/Services Multiple Products/Services Investment Capital Investment Capital Large Marketplace Large Marketplace

5. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 5 How Entrepreneurs Spend Their Time Dealing with employees Keeping records Direct selling Production Maintenance Dealing with suppliers Arranging financial matters Planning growth and change Other services

6. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 6 Traits of Entrepreneurs Highly disciplined Like to control their destiny Listen to their intuition Relate well with others Eager to acquire new skills Learn from their mistakes

7. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 7 Characteristics of Entrepreneurs Stay abreast of market changes Willing to exploit new opportunities Seldom follow trends Driven by ambition Think positively Prefer risk taking over security

8. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 8 Factors Contributing to Small Business Growth Technology and the Internet Women and minorities Downsizing and outsourcing

9. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 9 Women Starting Businesses Entrepreneurial idea Glass ceiling Bored in job Downsized Fell into it Family event Born entrepreneur Reenter workforce

10. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 10 Starting a Small Business Starting a new business Buying an existing business Obtaining a franchise

11. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 11 Starting a New Business + Control your destiny + Reach your potential + Unlimited profits + Recognition + Doing what you enjoy – Uncertainty of income – Risk of loss – Long hours & hard work – Complete responsibility – High stress levels AdvantagesDisadvantages

12. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 12 Buying an Existing Business + Customer base + Business systems + Product or service + Location + Financing – Alienated customers – Obsolescence – Location – Personality clashes – Outstanding receivables AdvantagesDisadvantages

13. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 13 The Franchise Alternative Franchisee Franchisor Types of franchises –Product –Manufacturing –Business-format

14. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 14 The Pros and Cons of Franchising Advantages  Get a viable business  Instant name recognition  Built in support group  Marketing & advertising Disadvantages  No guarantee of success  Expensive to obtain  High monthly royalties  Limited independence

15. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 15 How to Evaluate a Franchise What does the initial franchise fee cover? How are periodic royalties calculated and when are they paid? Are all trademarks and names legally protected? Who provides and pays for advertising and promotion? Who selects the location of the business?

16. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 16 How to Evaluate a Franchise Is the franchise assigned an exclusive territory? Does the franchisee have the right of first refusal on additional nearby franchises? Is the franchisee required to purchase equipment and supplies from the franchisor? How can the franchise agreement be terminated? Can the franchise be assigned to heirs?

17. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 17 Importance of a Business Plan Guides company operations Outlines a strategy Attracts lenders and investors

18. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 18 A Formal Business Plan Summary Mission and objectives Company and industry Products or services Market and competition Management Marketing strategy

19. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 19 A Formal Business Plan Design and development plans Operations plan Overall schedule Critical risks and problems Financial forecasts and requirements Exit strategy

20. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 20 Why New Businesses Fail Management IncompetenceManagement Incompetence Lack of Industry ExperienceLack of Industry Experience Inadequate FinancingInadequate Financing Poor Business PlanningPoor Business Planning Unworkable GoalsUnworkable Goals Diminished Customer BaseDiminished Customer Base Uncontrolled GrowthUncontrolled Growth Inappropriate LocationInappropriate Location Poor System of ControlsPoor System of Controls Lack of Entrepreneurial SkillsLack of Entrepreneurial Skills

21. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 21 Sources of Small Business Assistance SCORE Incubators The Internet Small Business Administration

22. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 5 - 22 Private Sources of Financing Friends and family Commercial lenders Corporate financing Venture capitalists Angel investors Credit cards