Post on 13-Dec-2015
Copyright 2005 Prentice- Hall, Inc. 4-1
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Understanding Entrepreneurship Understanding Entrepreneurship & New Ventures& New Ventures
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What Is A “Small” Business?What Is A “Small” Business?EntrepreneurshipEntrepreneurshipStarting/Operating A New BusinessStarting/Operating A New BusinessFranchisingFranchisingSuccess/Failure In A Small BusinessSuccess/Failure In A Small BusinessNoncorporate Business OwnershipNoncorporate Business OwnershipCorporationsCorporations
Copyright 2005 Prentice- Hall, Inc. 4-4
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ess ““Small” BusinessSmall” Business
• Small Business AdministrationSmall Business Administration–Number of Number of
EmployeesEmployees
– Total Annual Total Annual SalesSales
• Independently Owned/Managed Independently Owned/Managed & Does Not Dominate Its Market& Does Not Dominate Its Market
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Small Business Small Business ImportanceImportance
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Need For Need For Small BusinessesSmall Businesses
• Job CreationJob Creation
• InnovationInnovation–Products/ServicesProducts/Services
–ProcessesProcesses
• Important To Big BusinessImportant To Big Business
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Small Business Small Business IndustriesIndustries
• ServicesServices
• ConstructionConstruction
• Finance & InsuranceFinance & Insurance
• WholesalingWholesaling
• Transportation & Transportation & ManufacturingManufacturing
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Small Business Impact Small Business Impact By IndustryBy Industry
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ess EntrepreneurEntrepreneur
• Accepts Risks & Opportunities In Accepts Risks & Opportunities In Creating/Operating A New BusinessCreating/Operating A New Business
• CharacteristicsCharacteristics
–ResourcefulResourceful–Good Customer RelationsGood Customer Relations–Desire To Be Own Boss- Gain Desire To Be Own Boss- Gain
Control Of LifeControl Of Life–Build For FamilyBuild For Family– Tolerance For Uncertainty/RiskTolerance For Uncertainty/Risk
Copyright 2005 Prentice- Hall, Inc. 4-10
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ess EntrepreneursEntrepreneurs
YesterdayYesterday TodayToday
Self-ReliantSelf-Reliant Open-MindedOpen-Minded
MaleMale Male or FemaleMale or Female
Quick DecisionsQuick Decisions Relies On Relies On OthersOthers
Copyright 2005 Prentice- Hall, Inc. 4-11
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Non-Financial Reasons Non-Financial Reasons To Start A BusinessTo Start A Business
9%7%
41%
21%
13%
9%
Do Something ILove
More Flexibility
Be Key DecisionMaker
Change Lifestyle
Spend More TimeWith Family
Don't Know or NotStated
Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf
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Financial Reasons Financial Reasons To Start A BusinessTo Start A Business
3%6%
12%
13%
27%
39%
Loss of Job Or ChangeOf Employment
More Income ForNecessities
Second Income
Bridge A Gap TillRetirement
Forced Into EarlyRetirement
Don't Know Or NotStated
Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf
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Start/OperateStart/OperateSmall BusinessSmall Business
Business Business PlanPlan
Start From Start From Scratch?Scratch?
FinancingFinancing
Buying Buying Existing?Existing?
Copyright 2005 Prentice- Hall, Inc. 4-14
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ess Business PlanBusiness Plan
• Summarizes StrategySummarizes Strategy
• Identifies ImplementationIdentifies Implementation
• Includes:Includes:
–Goals and ObjectivesGoals and Objectives
–Sales ForecastSales Forecast
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Business Plan- Projected Business Plan- Projected Financial StatementsFinancial Statements
• Cash Budget- Most Cash Budget- Most ImportantImportant
• Income Income StatementStatement
• Balance SheetsBalance Sheets
• BreakevenBreakeven
Copyright 2005 Prentice- Hall, Inc. 4-16
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My Customers?My Customers?Where?Where?Price?Price?Quantities Will Be Bought?Quantities Will Be Bought?Competitors?Competitors?Product Differentiation?Product Differentiation?
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Financing Small Financing Small Business- TraditionalBusiness- Traditional
• Family/FriendsFamily/Friends
• Personal Personal SavingsSavings
• LendersLenders
• InvestorsInvestors
• GovernmentGovernment
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Credit Usage By Small Credit Usage By Small Business Firms- 1998Business Firms- 1998
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Business Credit Card
Personal Credit Card
Owner Loan
Gov't
Other Businesses
Family & Friends
Leasing
Brokerage
Finance Co.
Comm. Bank
Thrift
Credit Union
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
Percentage of Small Firms Percentage of Small Firms
Using Credit By SuppliersUsing Credit By Suppliers
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Thrift3%
Unknown2%
Family & Friends
3%
Leasing17%
Fin. Co.9%
Commerical Bank48%
Other8%Owner Loan
10%
Share of Outstanding Debt for Small Share of Outstanding Debt for Small Firms By Supplier of Credit 1998Firms By Supplier of Credit 1998
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
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Percentage of Small Business Loans Percentage of Small Business Loans From Commercial Banks- 1998From Commercial Banks- 1998
Under $100K87%
$250K-$1M6%
$100-$249K
7%
Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
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Other Sources Other Sources Of FinancingOf Financing
• Venture Capital CompaniesVenture Capital Companies• Small-Business Investment CompaniesSmall-Business Investment Companies• Small Business AdministrationSmall Business Administration– Guaranteed LoansGuaranteed Loans– Immediate Participation Immediate Participation
LoansLoans– Local Development Local Development
CompaniesCompanies• Other SBA ProgramsOther SBA Programs– SCORESCORE– SBDCsSBDCs
Copyright 2005 Prentice- Hall, Inc. 4-22
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ess Franchise SystemFranchise System
Franchise AgreementFranchise Agreement
FranchisorFranchisor
FranchiseeFranchisee
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ess Franchise ContractFranchise Contract
Franchisor, IncFranchisor, Inc..
FranchiseeFranchisee
Branded Branded Product/ServicProduct/Servic
eePerformancPerformanc
ee
MonitoringMonitoring$$$$$$$$$$
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ess FranchisingFranchising
To FranchiseeTo Franchisee
+Business Business OwnershipOwnership
+Access To Access To Mgmt. SkillsMgmt. Skills
+Low Failure Low Failure RateRate
To FranchiserTo Franchiser
+Rapid Growth Rapid Growth Using Other Using Other People’s MoneyPeople’s Money
To FranchiseeTo Franchisee
- High start-up High start-up costscosts
- % Of Sales To % Of Sales To FranchiserFranchiser
AdvantagesAdvantages DisadvantagesDisadvantages
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ess Trends In Small BusinessTrends In Small Business
• E-CommerceE-Commerce
• Big Business Big Business CrossoversCrossovers
• Minorities & WomenMinorities & Women
• Global Trade/SuppliersGlobal Trade/Suppliers
• Better Survival RatesBetter Survival Rates
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Startups:Startups:Success & FailureSuccess & Failure
Copyright 2005 Prentice- Hall, Inc. 4-27
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ess Growth of E-CommerceGrowth of E-Commerce
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ess Women EntrepreneursWomen Entrepreneurs
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Startups: Startups: Success vs. FailureSuccess vs. Failure
Copyright 2005 Prentice- Hall, Inc. 4-30
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ess Reasons For FailureReasons For Failure
3%15%
32%
15%
12%
12%
11%
Poor FinancialManagement
Incompetence orInexperience
Bad EconomicConditions
Poor Books orRecords
MarketingProblems
Staff or UnionProblems
Did Not UseExternal Advice
Source: The Coleman Chronicles, Vol. 1 Issue 20, “The Most Common Reasons for Small Business Failure… http://www.coleman.bc.ca/publications/chronicles/vol1issue20.htm
Copyright 2005 Prentice- Hall, Inc. 4-31
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ess Reasons For SuccessReasons For Success
• Hard Work, Drive, Hard Work, Drive,
& Dedication& Dedication
• Demand For Demand For
Product/ServiceProduct/Service
• Managerial CompetenceManagerial Competence
• LuckLuck
Copyright 2005 Prentice- Hall, Inc. 4-32
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Legal Entities of Legal Entities of Business OwnershipBusiness Ownership
• Sole Sole ProprietorshipProprietorship
• PartnershipsPartnerships– GeneralGeneral
– LimitedLimited
– Master LimitedMaster Limited
• CooperativesCooperatives
• CorporationsCorporations– Closely-Held vs. Closely-Held vs.
Publicly- HeldPublicly- Held– S CorporationS Corporation– Limited LiabilityLimited Liability– ProfessionalProfessional– Multinational Multinational
(Transnational)(Transnational)
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FreedomFreedom
Easy To FormEasy To Form
Low Start-up Low Start-up CostsCosts
Tax BenefitsTax Benefits
Unlimited Unlimited LiabilityLiability
Lack Of Lack Of ContinuityContinuity
Resources of Resources of One PersonOne Person
AdvantagesAdvantages DisadvantagesDisadvantages
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ess General PartnershipGeneral Partnership
More Talent & More Talent &
MoneyMoney
Easily CreatedEasily Created
Partners Taxed Partners Taxed
As IndividualsAs Individuals
Unlimited Unlimited LiabilityLiability
Lack Of Lack Of ContinuityContinuity
Difficult To Difficult To Transfer Transfer OwnershipOwnership
AdvantagesAdvantages DisadvantagesDisadvantages
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ess CorporationCorporation
Limited LiabilityLimited Liability ContinuityContinuity Access To More Access To More
CapitalCapital Ease Of Ease Of
Ownership Ownership TransferTransfer
Ease Of Ease Of Ownership Ownership TransferTransfer
Startup Cost- Startup Cost- Legal Legal RequirementsRequirements
Double TaxationDouble Taxation
AdvantagesAdvantages DisadvantagesDisadvantages
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Proportions of Legal Proportions of Legal Business EntitiesBusiness Entities
Copyright 2005 Prentice- Hall, Inc. 4-37
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ess Corporate GovernanceCorporate Governance
ShareholdersShareholders
Board Of DirectorsBoard Of Directors
OfficersOfficers
Business Business EmployeesEmployees
Copyright 2005 Prentice- Hall, Inc. 4-38
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ess Stock OwnershipStock Ownership
• PreferredPreferred– Fixed DividendFixed Dividend
–PriorityPriority
• CommonCommon–Dividend If ProfitableDividend If Profitable
– Last ClaimLast Claim
–Voting RightsVoting Rights
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Corporate Ownership-Corporate Ownership-Special IssuesSpecial Issues
• Joint Ventures & Strategic Joint Ventures & Strategic AlliancesAlliances
• Employee Stock Employee Stock OwnershipOwnership
• Institutional OwnershipInstitutional Ownership• Mergers & AcquisitionsMergers & Acquisitions• Divestitures & Spin-OffsDivestitures & Spin-Offs