Small Business and the Entrepreneur © 2014 Pearson Education, Inc.5-1 chapter 5 Better Business 3rd Edition Solomon (Contributing Editor) · Poatsy · Martin.

Small Business and the Entrepreneur

© 2014 Pearson Education, Inc. 5-1

chap

ter5

Better Business

3rd EditionSolomon (Contributing Editor) ·

Poatsy · Martin

Small Business A small business:

- Is independently owned and operated

- Is not a dominant force in its field

- In general, has fewer than 500 employees- Has an average of $7.5 million annual revenue

(in retail and service industries)

© 2014 Pearson Education, Inc. 5-2

Did you know?

• Approximately 70% fail within first year

– Why?

• Over 99% of all businesses in US are considered small

• Can be operated on a Full or Part-time basis.

• Small businesses offer unique advantages over larger businesses.

– Such as?

Small Business: The Pros and Cons

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Disadvantages and Threats:

• Higher Risk of Failure

• Lack of Knowledge and Experience

• Competition

• Too Little Money

• High Stress Level

• Bigger Regulatory Burden

• Higher Health Insurance Costs

Advantages and Opportunities:• Market Niches

• Fosters Innovation

• Serves the needs of larger companies

• Personal Customer Service & Employee Relationships

• Lower Overhead Cost

• Technology

• Helps our Economy (employment, competition)

Why Do Small Businesses Fail?

• Accumulating too much debt

• Inadequate management• Poor planning• Unanticipated

personal sacrifices

• High Stress Level

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Small Business and the EconomyIn the U.S., small businesses• Generate 65% of net new jobs• Create more than ½ of U.S. GDP• Export about one third of all U.S. exports of goods and services• Represents the second largest economy in the world

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Small Business Contributions

• Foster innovation• Help bigger companies:

- Supply products and services to the larger companies that they do not or cannot supply

• Help consumers:- Supply products and services that large companies

cannot or will not provide- Provides competition to bigger companies, which

reflects is more product choices and lower prices

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Small Business and the Workforce

• Create over 65% of new jobs each year• Employ many who do not fit into a

traditional corporate structure• Provide opportunities for women and

minorities

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The Impact of Technology on Small Business

• The personal computer, mobile devices, and the Internet have: - Created entirely new

business opportunities- Made starting a new

business easier • Impact of social media

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Why Go Into Business?Reasons to Start a Small Business

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Entrepreneur Basics

• What is an entrepreneur?• Traits of successful

entrepreneurs:- Innovative- Risk takers- Motivated to succeed- Flexible and self-directed- Work well with others- Good leadership skills- “System thinkers”

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Types of Entrepreneurs

• Lifestyle entrepreneurs• Micropreneurs• Home-based entrepreneurs• Internet entrepreneurs• Growth entrepreneurs• Intrapreneurs • Social entrepreneurs and social intrapreneurs• Entrepreneurial teams

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Going into Business: Developing a Business Plan

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Recognize Opportunity

• New Business, Existing Business, Franchise

Business Plan• “Blue print for business,” a carefully

constructed guide for the person starting the business

• SBA, SBDC, Score• Write on a 4th Grade Level

Seek Capital• $100,000 avg “seed” money• Lenders/Investors

– What do they look at?• Family or Friends

File and Register Business

Operate and Manage

Where Do Small Business Owners Go for Help?

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Financing Considerations

• Cash• Credit cards• Banks and small business loans• Grants• Angle investors• Venture capitalists• Small Business Investment Company (SBIC)

program

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Starting a Business: Several Opportunities

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New Business – starting a brand-new business from scratch

Existing Business – buying an existing business

Franchises – the right to operate an individually owned business as though it was a part of a chain or outlet of stores

Starting a Brand New Business

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ADVANTAGES• Control you own destiny• Personal satisfaction – It’s

your business, you started it

• Unlimited income potential• True independence

DISADVANTAGES• High risk of failure• Long hours and hard work• High stress levels• Complete responsibility

Buying an Existing Business Pros and Cons

Pros

• Ease of start-up• Existing customer base • Financing opportunities

Cons

• Purchase price may be high

• Inheriting the previous owner’s mistakes

• Unknowns in transition• Alienated customers?

Employees?

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___Pros

• Ease of start-up• Existing customer base • Financing opportunities

Pros

• Ease of start-up• Existing customer base • Financing opportunities

Due Diligence

Research and analysis of the business to uncover any hidden problems associated with it

© 2014 Pearson Education, Inc. 5-15

Franchise Basics

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Franchise• A license to operate an

individually owned business as though it were part of a chain of outlets or stores

Franchising• The actual granting of a

franchise

Franchisor• An individual or

organization granting a franchise

Franchisee• A person or organization

purchasing a franchise

Franchising Pros and Cons

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– Royalty Fee - % of Franchise Sales or Profits

– Franchise Fee – Fee paid to the Franchisor by the Franchisee

Questions to Ask Before Buying

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© 2014 Pearson Education, Inc. 5-22