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FERRELL | HIRT | FERRELL

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

• CHAPTER 4 Small Business, Entrepreneurship, and Franchising

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Entrepreneurship

The process of creating and managing a business to

achieved desired objectives

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What is Small Business?What is Small Business?

“Smallness” is relative

Small business is any independently owned and operated business, not dominant in its competitive area

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Women in Small BusinessWomen in Small Business

Women play a vital role in the economy

•As consumers, employees and business owners

Women own over 10 million businesses in the U.S.

•Employ 13 million people

•Annual sales of $2 trillion

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Impact of Small BusinessesImpact of Small Businesses

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What People in the U.S. Say is Their What People in the U.S. Say is Their Idea Idea

of the American Dreamof the American Dream

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Small Business InnovationSmall Business InnovationSmall businesses represent 55% of all innovations Airplane Audio tape recorder Double-knit fabric Fiber-optic examining equipment Heart valve Optical scanner Personal computer Soft contact lenses … and much more

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Traits of Successful Traits of Successful EntrepreneursEntrepreneurs

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Popular Industries for Popular Industries for Small BusinessSmall Business

Especially attractive industries to entrepreneurs:

Retailing and wholesaling Services Manufacturing High technology

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Retailing and WholesalingRetailing and Wholesaling

Selling directly to consumers Music stores Sporting-goods shops Dry cleaners Boutiques Drugstores Restaurants Hardware stores

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Services and ManufacturingServices and Manufacturing

Services Service sector is 80% of U.S. jobs

Attracts individuals whose skills are not required by large firms

Manufacturing Small manufacturers excel at customization

The Malcolm Baldridge National Quality Award rewards innovative small manufacturing firms

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High TechnologyHigh Technology

Businesses that depend heavily on advanced scientific and engineering knowledge.

40% of high-tech jobs are with small businesses

Government offers small business grants for high-tech companies through Small Business Innovation Research

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Small Business OwnershipSmall Business OwnershipAdvantages Disadvantages

Independence High stress level

Costs High failure rate50% of all new businesses fail within the first 5 years

Flexibility Undercapitalization

Lack of funds to operate normally

Focus Managerial inexperience

or incompetence

Reputation Inability to cope with

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Top 5 Biggest Challenges, Top 5 Biggest Challenges, Concerns & Goals of Small Concerns & Goals of Small

BusinessesBusinesses

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Starting a BusinessStarting a Business

Start with a concept or general idea

Create a business plan

Devise a strategy to guide planning & development

Make decisions

•Form of ownership

•Financing

•Acquire existing business or start new business?

•Buy a franchise

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The Business PlanThe Business Plan

A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Acts as a guide and reference document.

Explanation of the business

Analysis of competition

Income/Expense estimates

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Forms of Business Forms of Business OwnershipOwnership

Sole Proprietorship Partnership Corporation

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Financial ResourcesFinancial Resources

Provide your own personal capital Cash money Obtain capital

Financing options Loans Stocks Equity financing

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Equity FinancingEquity Financing

Selling or borrowing against the value of an asset such as an

(automobile, insurance policy, savings account) to obtain funds

to operate a business

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Venture CapitalistsVenture Capitalists

Persons/organizations that agree to provide funding for a new business in exchange

for an ownership interest or stock. Usually requires a sharing of ownership/control

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Debt FinancingDebt Financing

Borrowing financial resources typically from a bank or lending institution

– often collateral is needed

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Line of CreditLine of Credit

An agreement by which a financial institution promises to lend a business

a predetermined sum on demand

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Starting from Scratch vs. Starting from Scratch vs. Buying an Existing BusinessBuying an Existing Business

Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business

Existing businesses have the advantage of a built-in network of customers, suppliers and distributors

Reduces guesswork

Involves taking on any problems the business already had

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FranchisingFranchising

A license to sell another’s products or to use another’s name in business, or both

Franchiser

The company that sells a franchise

Franchisee The purchaser of a franchise

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FranchisesFranchises

Advantages Disadvantages

Training & support Fees and profit sharing

Brand name appeal Standardized operations

National advertising Restrictions on purchasing

Financial assistance Limited product line

Proven products Possible market saturation

Greater chance for success

Less freedom in decisions

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Popular FranchisesPopular Franchises

One of the most popular franchises in the world

The world’s largest restaurant chain

Over 33,300 restaurants in nearly 100 countries

Requires less start-up capital than many other franchises

Reputation for healthy food has improved Subway’s image

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Fastest Growing FranchisesFastest Growing Franchises

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The Future for Small The Future for Small BusinessBusiness

Demographic TrendsThe Baby BoomersGeneration Y (Millennials)Immigrants and shifting demographics

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The Future for Small The Future for Small BusinessBusiness

Technological & Economic Trends Internet usage continues to increase Increase in service exportsEconomic turbulenceDeregulation of the energy market &

alternative fuels

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Big Businesses Acting SmallBig Businesses Acting Small

Common Approaches Large firms emulate smaller ones to improve

bottom line

Downsizing (Rightsizing)•Acting small from inception – Southwest

Airlines

Intrapreneurs• Individuals in large firms who take

responsibility for the development of innovations within the organization

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