Entrepreneurship: A Business of Your Own Workforce Essentials Fall 2011

Do you know any business owners? Examples: Florists Barbers/Hair Dressers Restaurant Owners Printing Press Owners

Entrepreneur A person who organizes and manages a business.

Entrepreneurship The organization and management of a business.

Importance of Small Business Helps keep the economy strong by creating JOBS! Helped the US have a higher standard of living People working = more $ to spend! More $ to spend = more demand for goods & services of small businesses Small businesses hire more people to fill demand More people working + More $ to spend = increased standard of living Can do what corporations can’t! Create competition between each other and corporations to keep prices in line

Opportunities for Entrepreneurs Being an entrepreneur involves: Organizing a business, Planning its direction, and Taking the risks.

Advantages People go into business for themselves because: Can be exciting/rewarding Gives a sense of accomplishment “Be Your Own Boss!” Freedom to make decisions In charge of setting own schedule Opportunity to try out new ideas If new ideas are accepted – the entrepreneur gets credit! $$$$$$$$$$ Credit=Profit Profit – the money left from business income after paying all expenses (Entrepreneurs get to keep!!!!)

Disadvantages Must be willing to do EVERYTHING connected with a new business Must do the jobs of bookkeeper, manager, & salesperson May have to do the jobs of secretary & janitor May require lots of work hours (about 60 hours per week) Emotional strain – decision making, profitability Pressure of knowing business could fail

Types of Business Ventures Possibilities are almost endless Examples: Sell homemade products (clothing, artwork, food) Offer a service (house-cleaning, child care, car repair) Build a factory and manufacture items (tools, toys, furniture) Established business concept or new concept (dry cleaners, restaurants vs. computer software)

Franchises The right to marker another company’s product or service. Purchasing this right usually costs thousands or more! Examples: fast food restaurants, convenience stores, dry cleaners Advantages Proven track record of success Exclusivity – no one else could buy into the same franchise in the same area Franchiser support (training, tips, location, etc.)

Franchises Continued… Disadvantages Large initial investment $$$ Pay ongoing fees to retain right to use name May not be free to run as you wish May be required to follow guidelines Investigate carefully! Talk with other franchisees (people who own same franchise) about franchisor (one who sells a franchise) and success

Franchises

For more info on Franchises… Contact the Federal Trade Commission at: http://business.ftc.gov/selected-industries/franchises-and-business-opportunities

Buying an Existing Business Already established Owners sell because they want to: change careers, move, or retire Can eliminate much of the work and expense Location is already chosen Business already known in community Already have loyal customers Investigate first!!!! (Reputation? Equipment? New Laws? New Competition?

Business Planning Ever had a lemonade stand or paper route? Review Business Planning Checklist How to Succeed? Key quality – Optimism (believing in yourself and your business. Positive attitude!) Self Starter – one who had initiative to see what needs to be done and do it! Time, Energy, & Interest = Success Innovative – ability to come up with new ideas Decision-making Skills – must be able to decide on routine issues & major problems Risk taker (money, self-esteem, respect) Goal setter

Use Resources Wisely Human Resources – include both employees & customers Material Resources – include the supplies & other items needed to run a business Financial Resources – refer to the money needed to start the business and keep it going. Also includes profits.

Planning Resources One textbook chapter is NOT enough! Community College classes U.S. Small Business Administration (SBA) – agency providing assistance to small business owners in a number of ways. Est. in 1953 Provides financial, technical, & management assistance to help start, run, and enlarge a business Offers a start-up kit Can help develop business plan for lending institutes and applying process

SBA Offers workshops, seminars/course on: Marketing Purchasing Planning a small business Available online at http://www.sbaonline.sba.gov Another information source is http://www.workingsolo.com Contains links to important topics such as business planning, management, financial matters, government resources, sales, and marketing.

Choosing a Business What is best for YOU? Answer this first Your business should: Involve your interest and abilities Relate to your work experience or favorite hobby Fill needs and wants of consumers in your area Conduct a survey to determine consumer interests Investigate

Avoiding Fraud Fraud – the act of deceiving or tricking Victims are those who rush into a franchise or business opportunity by illegal or unethical marketers What ads or signs have you seen for business opportunities that seem “to good to be true?” Contact the BBB (Better Business Bureau) to determine if it is a scam and discover any complaints

Location, Location, Location Is where you are located important? Keep several factors in mind: Close to customers Close to suppliers Neighboring businesses Competition Room Capacity Parking facilities Electical and Plumbing Capacity

Work from Home Keeps costs down Do you know anyone who works from home? Can move later as they grow 41+ million people own businesses from home (2004) 7.6 million are telecommuters Telecommuter – a person working from home and maintaining contact via computer, fax, & phone. Close to 2 million people make over $100k a year working from home (2004)

Well Suited Home-Based Businesses Caterers Garment Makers Artists Photographers Architects Graphic Designers Consultants Computer programmers/repairers/engineers/marketers/technical writers

Salary vs. Commission Salary – the same amount every pay period regardless of hours worked Commission – a percentage of sales paid to a salesperson No sales = No pay!

Advantages of Working from Home Not committed to pay rent or a lease No travel time No parking expense or problems Can handle home responsibilities too Tax advantages

Disadvantages of Working from Home Family concerns may disrupt your business Neighbors may object Traffic concerns Clients may not take your business seriously Clients may feel your worksite is unprofessional Check with any zoning ordinances Loneliness from working alone

Setting Up a Home Office More than a desk and chair Involves very organized & detailed recordkeeping Tax Accountant or Attorney can assist in recordkeeping information for: Business-related receipts, bank statements, charge account statements, mileage logs, and cash receipts Keep personal and business finances separate All records should be kept in locked file cabinet Have electrician check wiring as large equipment can exceed capacity of regular home wiring. Have good lighting inside & out Light colored walls

Pricing Your Product/Service Are you charging enough or too much? Tips: Survey others working in same area. Determine highest and lowest acceptable rates. If your field isn’t crowded, you can charge more In busy season, you may consider raising rates You can charge more for the “can’t live without it!” items Overhead expenses – any expenses beyond materials and labor (i.e., rent, utilities, supplies, postage, advertising)

Legal & Financial Issues Choose business structure Meet zoning & licensing requirements Obtain financing Maintain accurate financial records Check on insurance policy

Business Structure How to set up your business 3 basic business structures – Proprietorships, Partnerships, & Corporations Each has advantages and disadvantages

Proprietorship Simplest type of business Least costly structure to form You – sole owner Gives freedom to run any way you want Makes you entirely responsible

Partnership Has the advantage of giving you someone to share business responsibilities May be able to borrow more money Must reach agreement(s) Your responsible if something happens to the partner

Corporation Easier to raise money Less risk to personal assets Costs more to set up Subject to more taxes Less freedom of action for entrepreneur

Zoning, Licensing, & Permits Zoning Laws – regulate what types of business activities can be performed in certain areas. License – a certificate showing that you have been granted permission to practice your occupation. Alabama Department of Commerce can tell how to register a business

Financing Sources of Financing Savings Family/Friends Bank Lending Avoid Interest Costs Shows Confidence Family/Friends Agree to repay principal plus interest on when Bank Lending Usually difficult Outside Investors

Applying for a Loan Provide detailed business information Outline product type or service List location(s) Identify Competitors Who your customers are Promotional Plan Specify needs for space, equipment, & employees List of Financial Needs Future Growth Ability to Repay Loan

Expenses Capital expenses – one-time costs needed to get started Example: Machine Fixed Expenses – those that must be paid regularly in set amounts Example: Rent payments, Insurance Flexible Expenses – those that vary from month to month. Example: Utility bills, repairs, advertising costs

Statement of Assets & Liabilities Assets – items you own. Examples – cash, stocks, bonds, property Liabilities – all the debts you owe. Examples – car payments, home loan

Did you get the loan? Good Credit Rating Experience and Knowledge to run business A complete, organized proposal will affect the loan officer’s decision!

Small Business Failure 50 % fail within 5 years Lack of Financial Planning – often Record Keeping – it’s the law!

Recordkeeping Bookkeeping – involves the recording of income and expenses. Accounting – involves an analysis of the data you’ve recorded. Type of recordkeeping depends on the business Store – tracks products Employees – track hours (taxes and expenses) Service – tracks time performing tasks Receipts – (aka: revenues) include all money you receive from customers for cash and credit sales

Sales Slip Way to track receipts Include date, customer’s name, address, items sold, quantity, price per item, sales tax, and sales total Subtract expenses from receipts to determine profit To determine success compare years Profit Ratio – the percentage of receipts that are profit (by dividing total profit from total receipts) Main Goal is to PROFIT! Break-Even Point – when income = expenses Ex. 1st yr with 20% profit ratio, break-even = September

Professional Assistance Lawyer – can set up your business structure, verify zoning laws and licensing requirements; legal issues Discuss fees up front Accountant – helps you choose a record keeping system to meet your needs; help with loan applications; handle taxes; analyze books; advise on how to increase profits Other business owners Local Chamber of Commerce – give references Insurance Agent – protect in event of fire or theft; liability; disability coverage Look for Small Business Experience

Turn to pg. 462 Answer “Facts in Review” on pg. 420 #1-14 (all) When finished, turn in your answers! Raise your hand if you have a question. Good Luck!