part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Entrepreneurship and Starting a Small Business Chapter 5

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill 1.Explain the traits a successful entrepreneur possesses. 2.Discuss the types of business ownership and the advantages and disadvantages of each. 3.Describe the alternatives to starting your business from scratch. 4.Understand how a business can grow through mergers, acquisitions, and buyouts. 5.Describe the five main areas of focus when starting a small business. Learning Objectives

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Turn a passion into a business. What does it take to be an Entrepreneur? Major U.S. issue – Need to create more jobs Common characteristics Many take the risk for: –Opportunity –Profit –Independence –Challenge Introduction to Entrepreneurship

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Sole Proprietorships One person Advantages –Easy to start, easy out; you are your our own boss; you retain all profit; and no special federal taxes Disadvantages –Limited financial resources; skill gaps; unlimited liability; lack of fringe benefits; a limited lifespan Types of Business Ownership

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill Partnerships General partnership Limited partnership –General partner –Limited partner –Limited liability Master limited partnership (MLP) Limited liability partnership (LLP) Types of Business Ownership

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Partnerships Advantages: –More financial resources and pooled knowledge Disadvantages –Division of profits; unlimited liability for each general partner; conflicts among partners; difficult to get out of the relationship Types of Business Ownership

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill Corporations Corporate governance Board of directors C-Corporations –Owners not liable for debts S-Corporations –Government created, taxed like sole proprietor Limited Liability Corporations (LLCs) –Ownership rules are flexible; cannot sell stock; more paperwork; double taxation Types of Business Ownership

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill Franchises and Cooperatives Franchises Established product Financial assistance Lower failure rate Large start-up costs Must share profit Tight restrictions

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill Franchises and Cooperatives Buying an Existing Business Existing customer base Inventory Location

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Franchises and Cooperatives Cooperatives Different kind of organization More economic power –Farm cooperative

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Two types of buyouts – Mergers and acquisitions Mergers 3 major types: –Vertical, Horizontal, and Conglomerate Hostile takeover Types of Buyouts Leveraged Management Corporate Expansions

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill Getting Started in your own Business Five main areas of focus: –Planning, financing, marketing, managing employees, accounting Businesses fail due to: –Lack of planning or marketing –Unrealistic financial expectations –Wrong business partner –Lack of business knowledge

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Planning Business plan Executive summary Intrapreneuring Financing Venture capitalists Angel investors Small Business Administration (SBA) Getting Started in your own Business

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 14 McGraw-Hill Knowing Your Customers (Marketing) Know and fill market needs Managing your Employees Small company employees more satisfied Recruit and groom Record Keeping Effective systems save grief More time to focus on business Computers simplify process Getting Started in your own Business