Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5 Small Business Entrepreneurship, and Franchises

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Small Business Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size*. *Generally less than 500 employees and less than $2.5m in annual sales Businesses are “small” in relation to other businesses in their industries.

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Small Business: A Profile Over 70% of all small businesses fail within first year of operation Why? There are 28 million small businesses in the U.S. Over 99% of all businesses are considered small. Small businesses account for over 50% of the GDP. Small businesses have generated 65% of new jobs since About 80% of U.S. workers’ first jobs were in small business. Can be operated on a part-time or full-time basis Small business offer several unique advantages

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Advantages Small Businesses Have Over Large Businesses More PERSONAL customer service. (and personal service to employees!) The ability to respond quickly to opportunities (i.e. ADAPTABILITY and FLEXIBILITY). Fosters innovation Provides competition Fulfills market niches Serves the needs of larger businesses

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Why Do Small Businesses Fail? Lack of Knowledge and Experience Competition Too Little Money High Stress Level Personal extravagance Lack of self- discipline

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Advantages  Personal relationships with customers and employees  Ability to adapt to change  Simplified record keeping  Independence  Profit retention  Ease of start-up  Ability to keep secrets Disadvantages  High risk of failure  Limited potential  Limited ability to raise capital The Pros and Cons of Smallness

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Industries That Attract Small Businesses  Attractive small-business industry characteristics Low initial capital investment Some special skill requirements High growth and profit potential  Industries that attract small businesses Distribution—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)

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Going Into Business For Yourself Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs. Get Some Experience – Gain three years experience in the field; then start a part-time small business. Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. What is Entrepreneurship? Entrepreneur -- Someone who risks their time, effort and money owning and operating a business Entrepreneurship -- Accepting the risk of starting and running a business.

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Personal Factors and Motivation  Characteristics and other personal factors The “entrepreneurial spirit” The desire for independence The desire to determine one’s own destiny The willingness to find and accept a challenge Personal background Age (you are never too young or too old!)  Motivation “Had enough” of working for someone else High-tech opportunities, especially for teens Losing a job and deciding to start a business An idea for a new product An opportunity presents itself

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The People in Small Businesses: The Entrepreneurs  Women Own 36% of all small businesses Own 66% of home-based businesses About 7.8 million women-owned businesses in the United States provide almost 7.6 million jobs and generate $1.2 trillion in sales  Teenagers High-tech entrepreneurship is exploding Face unique pressures juggling schoolwork, social live, business workload Need skills for planning, persistence, patience, people management, generate profit

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Starting Your Own Business Recognize Opportunity New Business, Existing Business, Franchise Business Plan “Blue print for business,” a carefully constructed guide for the person starting the business SBA, SBDC, Score Write on a 4 th Grade Level Seek Capital $100,000 avg “seed” money Lenders/Investors What do they look at? Family or Friends File and Register Business Operate and Manage

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Small Business Administration  A governmental agency that assists, counsels, and protects the interests of small business in the United States  SBA management assistance Management courses and workshops Service Corps of Retired Executives (SCORE) Help for minority-owned small businesses Small-business institutes (SBIs) Small-business development centers (SBDCs) SBA publications

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. SBA: Financial Assistance  The SBA partially guarantees regular business loans SBA will repay 90% of loan if the borrower cannot repay it Loans may be as large as $2 million Average loans are $300,000 over eight years  The SBA licenses, regulates, and provides financial assistance to small-business investment companies (SBICs) SBICs: privately owned firms that provide venture capital to small enterprises that meet their investment standards Venture capital: money invested in small firms that have the potential to become very successful

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Common Business Opportunities New Business – starting a brand-new business from scratch Existing Business – buying an existing business Franchises – the right to operate an individually owned business as though it was a part of a chain or outlet of stores

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Starting a Brand New Business ADVANTAGES Control you own destiny Personal satisfaction – It’s your business, you started it Unlimited income potential True independence DISADVANTAGES High risk of failure Long hours and hard work High stress levels Complete responsibility

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Buying an Existing Business Ease of start-up Existing customer base Financing opportunities Purchase price may be high Inheriting the previous owner’s mistakes Unknowns in transition Alienated customers? Employees? Pros Cons

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Franchising  A franchise is a license to operate an individually owned business as though it were part of a chain of outlets or stores Franchising is the actual granting of a franchise A franchisor is an individual or organization granting a franchise A franchisee is a person or organization purchasing a franchise

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Franchises  A 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

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Growth of Franchising  Franchising began in the United States around the time of the Civil War  Originally used by large firms to distribute products  Franchising has been increasing steadily in popularity since the early 1900s  Has experienced enormous growth since the mid- 1970s  Dual-branded franchises, in which two franchisors offer their products together, are a new small- business trend

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Are Franchises Successful?  The success rate for franchises is significantly higher than that for other small businesses  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

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. To the Franchisor  Fast and well controlled distribution of its products  No need to construct and operate its own outlets  More working capital available for expanded production and advertising  Franchising agreements maintain product and quality standards  Motivated work force of franchisees To the Franchisee  Opportunity to start a proven business with limited capital  Guaranteed customers  Franchisor available for advice and guidance  Materials for local promotional campaigns and participation in national campaigns  Cost savings when purchasing in cooperation with other franchisees Advantages of Franchising

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. To the Franchiser  Failure of the franchisee to operate franchise properly  Disputes with and lawsuits by franchisees over the terms of the franchise To the Franchisee  It can be expensive  Royalty Fees  Franchise Fees  Franchisor retains a large amount of control over the franchisee’s activities  Franchisor opening competing franchises within the franchisee’s market Disadvantages of Franchising