5 Chapter Entrepreneurship and Small Business pp. 68-83

Learning 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

Learning 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.

Why It’s Important Entrepreneurs and small businesses bring vital energy and innovation to the economy. The risks involved energize entrepreneurs and small business owners to become successful.

Key Words entrepreneurship virtual business or dot-com company small business entrepreneur risk taker profit

The Ins and Outs of Entrepreneurship Entrepreneurships and small businesses are the majority of business firms.

The Ins and Outs of Entrepreneurship An entrepreneurship is a business started by someone who notices a need for a product or service.

The Ins and Outs of Entrepreneurship A virtual business or a dot-com company is a business that operates on the Internet.

Online Finance Some 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

When LENDX started, their first six employees worked for shares of company stock only. Analyze Why would its employees work without a salary?

Take this quiz and see if you would be a good entrepreneur. Figure 5.1 ARE 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 30-34 = willing to take risks and try something new 25 and under = you take fewer risks

The 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.

The 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.

Successful Entrepreneurs Graphic Organizer Successful Entrepreneurs Recognize opportunities Desire achievement Have high energy Want to control destiny Successful Entrepreneurs Take risks Desire to earn profit Are determined Are enthusiastic Have self- confidence

Advantages of Entrepreneurship There are many advantages to being an entrepreneur, including: Satisfaction from taking a risk and becoming a success Showing expertise and skills continued

Advantages of Entrepreneurship Working from home Gaining profit Profit is the money left over after a business has paid all costs of producing its goods or services.

Disadvantages of Entrepreneurship The disadvantages to being an entrepreneur are: Long hours Total responsibility for the business Financial risks

Disadvantages of Entrepreneurship The main reason why entrepreneurships fail is that they run out of money.

What are some characteristics of entrepreneurs? Fast Review What are some characteristics of entrepreneurs? What are three advantages of an entrepreneurship? continued

What are some disadvantages of an entrepreneurship? Fast Review What are some disadvantages of an entrepreneurship? What is the main reason that entrepreneurships fail?

Small 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.

Small 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.

Small Business: What You Need to Know Small businesses employ more than 50 percent of the total workforce in the United States.

Small Business: What You Need to Know Small businesses generate more than half the nation’s income. They are the principal source of new jobs.

Making 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

Making 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?

Small Business: What You Need to Know Small businesses account for about 38 percent of jobs in high technology.

There are 25 million small businesses in the United States. Figure 5.2 SMALL BUSINESS EMPLOYMENT IN THE UNITED STATES There are 25 million small businesses in the United States. Which three types of small businesses provide the most jobs?

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

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.

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

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

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.

Disadvantages of Small Business The following are three specific reasons why a small business might not work: continued

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.

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

Disadvantages of Small Business Managerial Skills Needed Production Customer Relations

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.

Fast Review How does the Small Business Administration (SBA) define a small business? continued

Fast Review Give an example of a service that a small business may offer that a large company cannot offer. continued

Which is more difficult to form: a large business or a small business? Fast Review Which is more difficult to form: a large business or a small business? Give examples of special skills that a small business owner needs. continued

List two financial reasons that small businesses fail. Fast Review List two financial reasons that small businesses fail.

Preparing for Your Own Business A business plan is a written description of a new business venture that describes all aspects of the business.

Checklist 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

Checklist 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

Checklist for Starting a Venture What licenses, permits, or other legal documents do I need? How much money will I need to get started?

Parts of a Business Plan The essential parts of the business plan are: Summary Company description Products and services continued

Parts of a Business Plan Marketing plan Legal plan Management and operating plan Financial plan

Business 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

Business 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

Business Building Blocks Elements of a Business Plan The management plan and operating plan detail the company’s key personnel. Complete a financial plan. continued

Business Building Blocks Effective Business Plan Tips for Writing an Effective Business Plan Be 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.

Name the essential elements of a business plan. Fast Review What is a business plan? Name the essential elements of a business plan.

What makes a person an entrepreneur? What makes a company successful? continued continued

Identify some reasons why a small business might be hard to manage. What are some benefits of selling online?

Entrepreneurship and Small Business 5 End of Chapter Entrepreneurship and Small Business