1. Entrepreneurship and Small Business

2. What Is “Small Business”?
Independently owned and managed business that does not dominate its market

3. What Is “Small Business”?
A small business serves a limited geographic area, employs fewer than 500 people, and is not dominant in its industry.

4. Popular Areas of Small Business Enterprise
Services
Retailing
Construction
Financial
Insurance
Wholesaling
Transportation
Manufacturing
Manufacturing 5%
Finance &
Insurance
10%
Other
1.7%
Wholesale 8%
Transportation 5%
Construction
10%
Services
37.6%
Retailing
22.7%

5. 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

6. 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.

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

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

9. 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.

10. 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.

11. 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
continued

12. Disadvantages of Small Business
Managerial Skills Needed
Production
Customer Relations

13. 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.

14. Types of Business Organizations
Type of Business
73% 7%
20%
Sales Revenue 5% 6%
89%
Sole Proprietorship
Partnership
Corporations

15. Comparative Summary: Three Forms of Business
Business Form
Liability
Continuity
Management
Investment Sources
Proprietorship
Personal, unlimited
Ends with death or decision of owner
Personal, unrestricted
Personal
General Partnership
Personal, unlimited
Ends with death or decision of any partner
Unrestricted or depends on partnership agreement
Personal by partner(s)
Corporation
Capital invested
As stated in charter, perpetual or for specified period of years
Under control of board of directors, which is selected by stockholders
Purchase of stock
Copyright ©2003 Prentice Hall, Inc.
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16. Limited fundraising capability Lack of continuity
Sole Proprietorships
Advantages:
Freedom
Simple to form
Low start up costs
Tax benefits
Disadvantages:
Unlimited Liability
Limited resources
Limited fundraising capability
Lack of continuity
Unlimited Liability
Legal principle holding owners responsible for paying off all debts of a business

17. More fundraising capability Relatively easy to form Tax benefits
Partnerships
Advantages:
More talent and money
More fundraising capability
Relatively easy to form
Tax benefits
Disadvantages:
Unlimited Liability
Disagreements among partners
Lack of continuity
Unlimited Liability
Legal principle holding owners responsible for paying off all debts of a business

18. Remember…
“When two men in business always agree, one of them is unnecessary.” William Wrigley Jr.
But…
An exit plan is still crucial!

19. What is a Corporation?
“An artificial being, invisible, intangible, and existing only in contemplation of the law.”

20. Stronger fundraising capability Disadvantages: Double Taxation
Corporations
Advantages:
Limited Liability
Continuity
Stronger fundraising capability
Disadvantages:
Double Taxation
Fluid control
Complicated and expensive to form

21. Types of Corporations Closely Held (Private) Corporation
Publicly Held (Public) Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational or Transnational Corporation

22. Buying an Existing Business
Getting Started
Buying an Existing Business
Starting From Scratch

23. Financing the Small Business
Personal resources
Loans
Venture capital companies
Small-business investment companies
Small Business Association (SBA)
Financial aid and management advice

24. FRANCHISING An Ownership Opportunity Advantages Disadvantages
Proven business opportunity
Access to management expertise
Disadvantages
Start-up costs
On-going payments
Management rules and restrictions