> > > > Options for Organizing Small and Large Businesses Chapter 5

What is Small Business? A small business can be defined as a business that is privately owned and operated, with a small number of employees and relatively low volume of sales as well as profit. In Bangladesh, small businesses are known as SME (Small and Medium Enterprises) but their meaning is the same as the definition of small business we have discussed.

Creating New Jobs Creating New Industries Innovation Contributions of Small Business Small businesses are the core of the economy. From cleaners to fast-food and day-care; small businesses create jobs, create new industries and are the driver of innovation in the economy.

Contributions of Small Business (contd….) CREATING NEW JOBS: Small firms are dominant factors in creating jobs in industries such as: - construction - wholesale trade - service businesses - restaurants, etc. Small businesses also contribute in creating employment for those who have difficulty in finding jobs at larger firms.

Contributions of Small Business (contd….) CREATING NEW INDUSTRIES: The small business sector also enables entrepreneurs to develop their ideas and perhaps creating entirely new industries e.g. Microsoft, Yahoo, Google, Facebook, all began as small businesses. New industries can also be created when small businesses adapt to shifts in consumer interests and preferences, e.g. the growth of wireless internet access in different organizations has created tremendous growth opportunities in this industry.

Contributions of Small Business (contd….) INNOVATION: Small businesses are often much better than large businesses at developing new and better goods and services because of their flexible structure and quick decision making.

Business Plan Written documentation that provides orderly statement of a company’s goals, methods by which it intends to achieve these goals, and the standards by which it will measure achievement. Although, there is no one best format, but a good business plan includes the methods and time frames for achieving specific goals e.g. sales, profits, etc. A business plan also includes the following: - an executive summary that briefly answers the who, what, why, when, where and how questions for the business.

Business Plan (contd....) -an introduction that includes a general statement of the concept, purpose, and the objectives of the proposed business -separate financial and marketing sections that describe the firm’s target market and marketing plan as well as detailed financial forecasts of the need for funds and when the firm will break-even. -resumes of principals – especially in plans written to obtain financing.

The Franchising Alternative A contractual business agreement between a manufacturer or another supplier and a dealer to produce and market the supplier’s good or service.

Starting a small, independent company can be a risky, and time-consuming effort. However, franchising can reduce the amount of time and effort needed to expand. The franchisor has already developed and tested the concept and the brand may already be familiar to prospective customers. The Franchising Alternative

The two parties in a franchising agreement are the franchisee and the franchisor. In exchange of some payment (also known as royalty fee which is actually a fee plus a percentage of sales) from the franchisee, the franchisor provides business plans, site selection help, managerial and accounting systems, and other services to assist the franchisee. Franchise agreements often specify that the franchisee will receive materials, equipment and training from the franchisor. Franchising Agreements

Benefits and Problems of Franchising Advantages –Prior performance record –Recognizable company name –Proven business model –Tested management program Disadvantages –High franchise fees –Linked to Reputation and Management –Franchise Agreement Restrictions

Global Franchise Rankings 2012

Alternatives for Organizing A Business Whether small or large, every business fits into one of the three categories of legal ownership: sole proprietorships, partnerships, and corporations. Each form of business has its advantages and disadvantages.

Alternatives for Organizing A Business

Forms of Private Ownership

Legal Structures to Meet Changing Needs Financial Situation Management Skills and Limitations Management Styles and Capabilities Exposure to Liability

Corporate Management Stockholders – acquire stocks in exchange for ownership. –Preferred Stock –Common Stock Board of Directors – elected by stockholders to oversee corporation. Corporate Officers & Management – make major corporate decisions and handle ongoing operations.

Mergers and Acquisitions (M&A) –Merger - combination of two or more firms to form one company. Vertical - combine firms at different levels of production e.g. General Motors were to merge with Bridgestone Tyres or Michelin Tyres i.e. a car manufacturer purchasing a tyre company. Horizontal - join firms in the same industry e.g. coming together of a soft drink company and a mineral water company. Conglomerate - combine unrelated firms in unrelated industries. When Businesses Join Forces

–Acquisition - procedure in which one firm purchases the property and assumes the obligations of another. Joint Ventures – partnership between companies for a specific purpose e.g. Sony-Ericsson, which is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. When Businesses Join Forces