Part 5—Job Satisfaction Chapter 22 Entrepreneurship: A Business of Your Own.

Part 5—Job SatisfactionPart 5—Job Satisfaction

Chapter 22Chapter 22

Entrepreneurship: A Entrepreneurship: A Business of Your Business of Your

OwnOwn

Chapter ObjectivesChapter Objectives

ExplainExplain the importance of small business the importance of small business to the U.S. economy.to the U.S. economy.

DetermineDetermine advantages and advantages and disadvantages of entrepreneurship.disadvantages of entrepreneurship.

ExplainExplain points to consider when planning points to consider when planning a business, selecting a location, and a business, selecting a location, and pricing a product or service.pricing a product or service.

DiscussDiscuss advantages and disadvantages of advantages and disadvantages of conducting a business from home.conducting a business from home.

DescribeDescribe legal and financial issues legal and financial issues associated with starting a business. associated with starting a business.

Key ConceptsKey Concepts

Entrepreneurs and their small businesses Entrepreneurs and their small businesses play an important role in the economy of the play an important role in the economy of the United States.United States.

Many people find that the advantages of Many people find that the advantages of being an entrepreneur are worth the risks.being an entrepreneur are worth the risks.

Setting up a business includes choosing the Setting up a business includes choosing the business, choosing the location of your business, choosing the location of your business, and pricing your product or service.business, and pricing your product or service.

Entrepreneurs often need professional help Entrepreneurs often need professional help dealing with the legal and financial issues dealing with the legal and financial issues involved with starting a business. involved with starting a business.

Entrepreneurship:Entrepreneurship:A Business of Your OwnA Business of Your Own

Entrepreneur:Entrepreneur: A A person who person who organizes and organizes and manages a business.manages a business.

Entrepreneurship: Entrepreneurship: The organization The organization and management of and management of a business.a business.

The Importance of Small The Importance of Small BusinessBusiness

Businesses owned by entrepreneurs create Businesses owned by entrepreneurs create jobs, which helps keep the economy jobs, which helps keep the economy strong.strong.

Small businesses can identify and meet Small businesses can identify and meet consumer needs by providing specialized consumer needs by providing specialized products and services.products and services.

The majority of workers who do not work The majority of workers who do not work for the government are employed by small for the government are employed by small businesses.businesses.

Opportunities for Opportunities for EntrepreneursEntrepreneurs

An entrepreneur An entrepreneur must organize a must organize a business, plan its business, plan its direction, and take direction, and take risks.risks.

Entrepreneurship Entrepreneurship includes starting a includes starting a new business, new business, significantly significantly enlarging it, or enlarging it, or reorganizing a failed reorganizing a failed business.business.

Advantages of Advantages of EntrepreneurshipEntrepreneurship

Entrepreneurs:Entrepreneurs: Are their own bosses.Are their own bosses. Make their own Make their own

decisions.decisions. Set their own Set their own

schedules.schedules. Try new ideas.Try new ideas. Keep their company’s Keep their company’s

profit.profit.

Disadvantages of Disadvantages of EntrepreneurshipEntrepreneurship

Entrepreneurs:Entrepreneurs: Must be willing to do all Must be willing to do all

the jobs of a new the jobs of a new business.business.

Often work 60 hours per Often work 60 hours per week.week.

Worry about making a Worry about making a profit.profit.

Bear the burden of their Bear the burden of their decisions.decisions.

Feel pressure from Feel pressure from knowing their business knowing their business could fail.could fail.

Types of Business VenturesTypes of Business Ventures

An entrepreneur can start any type of business An entrepreneur can start any type of business he or she wants.he or she wants.

Some entrepreneurs use established business Some entrepreneurs use established business concepts, while others introduce new ideas.concepts, while others introduce new ideas.

FranchisesFranchises Franchise: Franchise: The right to market another The right to market another

company’s product or service.company’s product or service. Purchasing a franchise can be very expensive.Purchasing a franchise can be very expensive.

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FranchisesFranchises

Advantages:Advantages: Entrepreneur buys Entrepreneur buys

business with a business with a proven track proven track record.record.

Exclusivity Exclusivity – – no one no one can buy into the can buy into the franchise in the franchise in the same area.same area.

Support from Support from franchiser.franchiser.

Disadvantages:Disadvantages: Need a lot of money Need a lot of money

for initial for initial investment.investment.

Ongoing fees for Ongoing fees for continued use of continued use of company’s name.company’s name.

May be required to May be required to follow company follow company guidelines.guidelines.

Buying an Existing BusinessBuying an Existing Business

Existing owners may sell their business if Existing owners may sell their business if they want to:they want to: Change careers.Change careers. Move.Move. Retire.Retire.

Advantages:Advantages: Location is already decided.Location is already decided. Business name is already familiar in the Business name is already familiar in the

community.community. You will already have loyal customers.You will already have loyal customers.

Planning Your Own Planning Your Own BusinessBusiness

If you had a paper If you had a paper route or lemonade route or lemonade stand as a child, you stand as a child, you were an were an entrepreneur.entrepreneur.

If that motivated you, If that motivated you, you might consider you might consider your own business.your own business.

Making the decision Making the decision to open your own to open your own business should only business should only be done after careful be done after careful study and thought.study and thought.

What Does It Take to What Does It Take to Succeed?Succeed?

Qualities of successful entrepreneurs:Qualities of successful entrepreneurs: Optimistic.Optimistic. Self-starter.Self-starter. Innovative.Innovative. Skilled decision maker.Skilled decision maker. Risk taker.Risk taker. Ability to set and achieve goals.Ability to set and achieve goals. Good manager.Good manager.

Helpful Planning ResourcesHelpful Planning Resources

Do research at a library, chamber of Do research at a library, chamber of commerce, or state commerce commerce, or state commerce department.department.

Small Business Administration (SBA):Small Business Administration (SBA): An An agency that provides assistance for small agency that provides assistance for small business owners.business owners.

Many good sources are available online.Many good sources are available online.

Choosing a BusinessChoosing a Business

Ideally, your business Ideally, your business should combine your should combine your interests and abilities.interests and abilities.

Consider the needs Consider the needs and wants of your and wants of your consumers.consumers.

After you choose, find After you choose, find out more about the out more about the businessbusiness—it is better —it is better to choose another to choose another business than to open business than to open one that will fail.one that will fail.

Avoiding FraudAvoiding Fraud

Fraud: Fraud: The act of deceiving or tricking.The act of deceiving or tricking. Illegal and unethical marketers of business Illegal and unethical marketers of business

opportunities have scammed thousands of opportunities have scammed thousands of dollars out of people who want to start their dollars out of people who want to start their own businesses.own businesses.

Fraudulent businesses usually advertise big Fraudulent businesses usually advertise big profits.profits.

Your state’s consumer protection agency or Your state’s consumer protection agency or a local Better Business Bureau can help you a local Better Business Bureau can help you determine if the business is fraudulent.determine if the business is fraudulent.

Choosing a LocationChoosing a Location

The importance of the location depends on The importance of the location depends on the type of business.the type of business.

Factors to keep in mind when choosing a Factors to keep in mind when choosing a location:location: Proximity to customers.Proximity to customers. Ease of access for suppliers.Ease of access for suppliers. Neighboring businesses that will help attract Neighboring businesses that will help attract

people.people. Where competition is located.Where competition is located. If area population is in growth or decline.If area population is in growth or decline. Size of building and number of rooms.Size of building and number of rooms. Available parking facilities.Available parking facilities. Any need for special fixtures.Any need for special fixtures.

Working from Your HomeWorking from Your Home

Working at home can help you keep your Working at home can help you keep your costs down while your business is getting costs down while your business is getting started.started.

After your business grows and profits After your business grows and profits increase, you can move to another increase, you can move to another location.location.

Occupations Suited for Occupations Suited for Working from HomeWorking from Home

Some types of businesses work well as Some types of businesses work well as home-based operations.home-based operations.

If you respond to a work-at-home If you respond to a work-at-home advertisement, the sponsors should be advertisement, the sponsors should be able to tell you:able to tell you: What tasks you will be performing.What tasks you will be performing. If pay is based on salary or commission.If pay is based on salary or commission. Who will pay you and when.Who will pay you and when. What will be the cost to you.What will be the cost to you.

Commission:Commission: A percentage of sales paid to A percentage of sales paid to a salesperson.a salesperson.

Advantages and Advantages and Disadvantages of Working Disadvantages of Working

from Homefrom Home Advantages:Advantages:

No rent or lease No rent or lease commitment.commitment.

No commute.No commute. No parking No parking

expenses.expenses. Ability to handle Ability to handle

home home responsibilities responsibilities during the workday.during the workday.

Tax advantages.Tax advantages.

Disadvantages:Disadvantages: Family disruptions.Family disruptions. Neighbors’ objections.Neighbors’ objections. Clients may not take Clients may not take

your business your business seriously.seriously.

Zoning ordinances may Zoning ordinances may prohibit a home prohibit a home business.business.

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Advantages and Advantages and Disadvantages of Working Disadvantages of Working

from Homefrom Home Zoning laws:Zoning laws: Laws that regulate what type Laws that regulate what type

of business activities can be performed in of business activities can be performed in certain areas.certain areas.

Check with local zoning commission.Check with local zoning commission. You may not be able to open a store in You may not be able to open a store in

some residential areas.some residential areas.

Setting up a Home OfficeSetting up a Home Office

Setting up a home office Setting up a home office requires careful planning requires careful planning and decision making.and decision making.

For tax purposes, keep For tax purposes, keep detailed records, detailed records, business receipts, bank business receipts, bank statements, credit card statements, credit card statements, and mileage statements, and mileage logs.logs.

Before purchasing office Before purchasing office equipment, map your equipment, map your work area and consider work area and consider space limitations.space limitations.

Pricing Your Product or Pricing Your Product or ServiceService

Many entrepreneurs do not charge enough Many entrepreneurs do not charge enough for their products.for their products.

Tips to help you decide what price to charge:Tips to help you decide what price to charge: Determine the highest and lowest acceptable Determine the highest and lowest acceptable

rates for your area.rates for your area. Analyze your field and level of expertise.Analyze your field and level of expertise. Consider the level of demand.Consider the level of demand. Determine the value of your product or service.Determine the value of your product or service.

It is important that you charge enough to It is important that you charge enough to pay for materials, labor, and overhead pay for materials, labor, and overhead expenses.expenses.

Legal and Financial IssuesLegal and Financial Issues

If you become an entrepreneur, you will be If you become an entrepreneur, you will be affected by legal and financial issues:affected by legal and financial issues: Choosing your business structure.Choosing your business structure. Zoning, licensing, and permits.Zoning, licensing, and permits. Obtaining financing.Obtaining financing. Financial record keeping.Financial record keeping. Professional assistance.Professional assistance.

Choosing Your Business Choosing Your Business StructureStructure

Proprietorship:Proprietorship: Advantage – you Advantage – you

would be the only would be the only owner.owner.

Disadvantage – you Disadvantage – you are responsible for the are responsible for the business and its business and its associated risks.associated risks.

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Choosing Your Business Choosing Your Business StructureStructure

Partnership:Partnership: Advantage – shared Advantage – shared

business responsibility.business responsibility. Disadvantage – Disadvantage –

deciding who has the deciding who has the final say in final say in disagreements.disagreements.

Advantage – you may Advantage – you may be able to borrow more be able to borrow more money than you could money than you could by yourself.by yourself.

Disadvantage – being Disadvantage – being responsible for a responsible for a partner’s debts.partner’s debts.

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Choosing Your Business Choosing Your Business StructureStructure

Corporation:Corporation: Advantage – easier Advantage – easier

to raise money.to raise money. Disadvantage – Disadvantage –

costs more to set costs more to set up.up.

Advantage – less Advantage – less risk to personal risk to personal assets.assets.

Disadvantage – Disadvantage – subject to more subject to more taxes.taxes.

Zoning, Licensing, and Zoning, Licensing, and PermitsPermits

Before you open your business, find out Before you open your business, find out what your legal responsibilities are.what your legal responsibilities are.

License:License: A certificate showing you have A certificate showing you have been granted permission to practice your been granted permission to practice your occupation.occupation.

Your state Department of Commerce can Your state Department of Commerce can help you find out what licenses and help you find out what licenses and permits you will need.permits you will need.

Obtaining FinancingObtaining Financing

Many entrepreneurs Many entrepreneurs have trouble because have trouble because they fail to obtain they fail to obtain sufficient money to sufficient money to run their business.run their business.

Sources of financing Sources of financing include:include: Your savings account.Your savings account. Family and friends.Family and friends. A loan from a bank.A loan from a bank. Outside investors.Outside investors.

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Obtaining FinancingObtaining Financing

Have the following prepared before you Have the following prepared before you apply for a loan:apply for a loan: Your business plan.Your business plan. A list of your financial needs estimating your A list of your financial needs estimating your

capital, fixed, and flexible expenses.capital, fixed, and flexible expenses. A statement of your assets and liabilities.A statement of your assets and liabilities. Your résumé.Your résumé.

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Obtaining FinancingObtaining Financing

Capital expenses:Capital expenses: One-time costs needed One-time costs needed to get the business started.to get the business started.

Fixed expenses:Fixed expenses: Expenses that must be Expenses that must be paid regularly in set amounts.paid regularly in set amounts.

Flexible expenses:Flexible expenses: Expenses that vary Expenses that vary from month to month.from month to month.

Assets:Assets: Items you own. Items you own. Liabilities:Liabilities: All the debts you owe. All the debts you owe.

Financial Record KeepingFinancial Record Keeping

Keeping good Keeping good financial records can financial records can help in your planning help in your planning once your business is once your business is running.running.

Bookkeeping:Bookkeeping: The The recording of income recording of income and other expenses.and other expenses.

Accounting:Accounting: An An analysis of the record analysis of the record keeping data of the keeping data of the business.business.

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Financial Record KeepingFinancial Record Keeping

The type of record keeping system you use The type of record keeping system you use depends on the type of business.depends on the type of business.

Compare your profits from year to year to Compare your profits from year to year to evaluate the success of the business.evaluate the success of the business.

Receipts:Receipts: All the money you receive from All the money you receive from customers for cash and credit sales.customers for cash and credit sales.

Profit ratio:Profit ratio: The percentage of receipts that The percentage of receipts that are profits; figured by dividing total profit are profits; figured by dividing total profit by total receipts.by total receipts.

Break-even point:Break-even point: When income equals When income equals expenses.expenses.

Professional AssistanceProfessional Assistance

Lawyers:Lawyers: Help set up business structure, check zoning Help set up business structure, check zoning

laws and license requirements, other legal laws and license requirements, other legal problems related to your business.problems related to your business.

Accountants:Accountants: Help choose record keeping system, help with Help choose record keeping system, help with

loan applications, handle your taxes, analyze loan applications, handle your taxes, analyze your books, and give advice on how to increase your books, and give advice on how to increase profits.profits.

Insurance agents:Insurance agents: Recommend and provide different types of Recommend and provide different types of

coverage (fire, theft, liability, disability).coverage (fire, theft, liability, disability).

Thinking BackThinking Back

What should you What should you consider when planning consider when planning a business?a business?

What are the advantages What are the advantages and disadvantages of and disadvantages of conducting business conducting business from home?from home?

What legal and financial What legal and financial issues are associated issues are associated with starting a business?with starting a business?