Copyright © 2003 by South-Western. All Rights Reserved. CHAPTER FIVE OPTIONS FOR ORGANIZING SMALL AND LARGE BUSINESSES Text by Profs. Gene Boone & David

Copyright © 2003 by South-Western. All Rights Reserved.

CHAPTER FIVECHAPTER FIVE

OPTIONS FOR ORGANIZING SMALLOPTIONS FOR ORGANIZING SMALL AND LARGE BUSINESSES AND LARGE BUSINESSES

Text by Profs. Gene Boone & David KurtzText by Profs. Gene Boone & David KurtzMultimedia Presentation byMultimedia Presentation byProf. Milton PressleyProf. Milton PressleyThe University of New OrleansThe University of New Orleans

[email protected]@uno.edu


• Distinguish between small and large Distinguish between small and large businesses, and identify the industries in businesses, and identify the industries in which most small firms are establishedwhich most small firms are established

• Discusses the economic and social Discusses the economic and social contributions of small businesscontributions of small business

• Compare the advantages and disadvantages Compare the advantages and disadvantages of small businessof small business

• Describe how the Small Business Describe how the Small Business Administration assists small-business ownersAdministration assists small-business owners

• Explain how franchising can provide Explain how franchising can provide opportunities for both franchisors and opportunities for both franchisors and franchiseesfranchisees

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


• Summarize the three basic forms of Summarize the three basic forms of business ownership and the advantages and business ownership and the advantages and disadvantages of each formdisadvantages of each form

• Identify the levels of corporate managementIdentify the levels of corporate management• Describe recent trends in mergers and Describe recent trends in mergers and

acquisitionsacquisitions• Differentiate among private ownership, Differentiate among private ownership,

public ownership, and collective ownership public ownership, and collective ownership (cooperatives)(cooperatives)

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


CHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEW

• Variables affecting the Variables affecting the organization of your business organization of your business include:include:• How easily can you set up this type of How easily can you set up this type of

organization? organization? • How much financial liability can you How much financial liability can you

afford to accept?afford to accept?• What financial resources do you have?What financial resources do you have?• What strengths and weaknesses do you What strengths and weaknesses do you

see in others?see in others?• What are your own strengths and What are your own strengths and

weaknesses?weaknesses?

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MOST BUSINESSES ARE MOST BUSINESSES ARE SMALL BUSINESSESSMALL BUSINESSESMOST BUSINESSES ARE MOST BUSINESSES ARE SMALL BUSINESSESSMALL BUSINESSES• 98 percent have fewer than 100 98 percent have fewer than 100

employeesemployees• Over 14 million people in the U.S. Over 14 million people in the U.S.

are earning business income are earning business income without any employeeswithout any employees

• Almost half the sales in U.S. are Almost half the sales in U.S. are made by small businessesmade by small businesses

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What Is a Small Business?What Is a Small Business?What Is a Small Business?What Is a Small Business?

• Small business:Small business: firm that is firm that is independently owned and independently owned and operated, is not dominant in its operated, is not dominant in its field, and meets industry specific field, and meets industry specific size standards for income or size standards for income or number of employeesnumber of employees

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Figure 5.1: the SBA’s Web Page Leading to Criteria for Figure 5.1: the SBA’s Web Page Leading to Criteria for Defining a Small-businessDefining a Small-business


Typical Small Business VenturesTypical Small Business VenturesTypical Small Business VenturesTypical Small Business Ventures

• Most nonfarming small businesses Most nonfarming small businesses have been concentrated in retailing have been concentrated in retailing in the service industriesin the service industries

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Figure 5.2 Top Five Industries for Small BusinessFigure 5.2 Top Five Industries for Small Business


Typical Small Business VenturesTypical Small Business VenturesTypical Small Business VenturesTypical Small Business Ventures• Almost half of small businesses in the Almost half of small businesses in the

U.S. are home based businesses (firms U.S. are home based businesses (firms operated from the residence of the operated from the residence of the business owner)business owner)

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CONTRIBUTIONS OF SMALL CONTRIBUTIONS OF SMALL BUSINESS TO THE ECONOMYBUSINESS TO THE ECONOMYCONTRIBUTIONS OF SMALL CONTRIBUTIONS OF SMALL BUSINESS TO THE ECONOMYBUSINESS TO THE ECONOMY

• Creating New JobsCreating New Jobs• Creating New IndustriesCreating New Industries• Attracting New IndustriesAttracting New Industries

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ADVANTAGES OF A SMALL ADVANTAGES OF A SMALL BUSINESSBUSINESSADVANTAGES OF A SMALL ADVANTAGES OF A SMALL BUSINESSBUSINESS• Small businesses differ Small businesses differ

greatly in:greatly in:• Forms of organizationForms of organization• Market positionsMarket positions• Staff capabilitiesStaff capabilities• Managerial stylesManagerial styles• Organizational structuresOrganizational structures• Financial resourcesFinancial resources

• These differences usually These differences usually seem like advantages to seem like advantages to small-business ownerssmall-business owners © PhotoDisc


Figure 5.3 Advantages Business Ownership

Figure 5.3 Advantages Business Ownership


• Typically develop twice as many product innovations per employee as larger firms

• Also obtain the more patents per sales dollar than larger businesses

• Key innovations developed by small businesses include the airplane, audio tape recorder, double-knit fabrics, optical scanner, PC, soft contact lenses, and the zipper

Demographic

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InnovationInnovation

ADVANTAGES OF A SMALL ADVANTAGES OF A SMALL BUSINESSBUSINESSADVANTAGES OF A SMALL ADVANTAGES OF A SMALL BUSINESSBUSINESS


• Small firms can operate with greater flexibility

• This allows tailoring of product lines and services to the needs of customers

Innovation

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Superior Customer Service




• Small firms may be able to provide goods and services at prices that large firms cannot match

• Overhead costs are usually minimized

• Typically, organizations are lean -- with the smallest staffs and few support personnel

Innovation

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Low CostsLow Costs



• Large businesses tend to focus on the large segments of the overall market

• Growth prospects of market niches are too limited, and expenses involved in serving them to great, for large firms

• This creates opportunity for small firms

Innovation

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Low Costs

Filling IsolatedMarket NichesFilling IsolatedMarket Niches



DISADVANTAGES A OF SMALL DISADVANTAGES A OF SMALL BUSINESSBUSINESSDISADVANTAGES A OF SMALL DISADVANTAGES A OF SMALL BUSINESSBUSINESS

• In addition to being vulnerable to In addition to being vulnerable to economic downturns, primary economic downturns, primary disadvantages include:disadvantages include:• Management shortcomingsManagement shortcomings• Inadequate financingInadequate financing• Government regulationsGovernment regulations

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Figure 5.4 Business FailuresFigure 5.4 Business Failures


Management ShortcomingsManagement ShortcomingsManagement ShortcomingsManagement Shortcomings

• People often go into People often go into business with little, if business with little, if any, business trainingany, business training

• Owners often hesitate to Owners often hesitate to turn to consultants for turn to consultants for advice in areas were they advice in areas were they lack knowledge or lack knowledge or experienceexperience

• Frequently struggle with Frequently struggle with “rose-colored-glasses “rose-colored-glasses syndrome”syndrome”

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Inadequate FinancingInadequate FinancingInadequate FinancingInadequate Financing• Too often, new business owners Too often, new business owners

assume a that they will generate assume a that they will generate enough funds in the first few enough funds in the first few weeks or months to finance weeks or months to finance continuing operationscontinuing operations

• Provisions must be made for Provisions must be made for uneven cash flows uneven cash flows

• Banks often very reluctant to Banks often very reluctant to make small business loansmake small business loans

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Figure 5.5 Sources of Small-Business FinancingFigure 5.5 Sources of Small-Business Financing


Government RegulationGovernment RegulationGovernment RegulationGovernment Regulation

• Small-business owners often Small-business owners often complain bitterly of excessive complain bitterly of excessive government regulation and red tapegovernment regulation and red tape

• Paperwork costs account for Paperwork costs account for billions of small-business dollars billions of small-business dollars each yeareach year

• Taxes are another burdensome Taxes are another burdensome expense for small businessesexpense for small businesses

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INCREASING OF THE LIKELIHOOD INCREASING OF THE LIKELIHOOD OF BUSINESS SUCCESSOF BUSINESS SUCCESSINCREASING OF THE LIKELIHOOD INCREASING OF THE LIKELIHOOD OF BUSINESS SUCCESSOF BUSINESS SUCCESS

• Two critical recommendations:Two critical recommendations:• Develop a business plan Develop a business plan • Use resources provided by such Use resources provided by such

agencies as the SBA and local agencies as the SBA and local business incubators for information, business incubators for information, advice, funding, and networking advice, funding, and networking opportunitiesopportunities

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Creating a Business PlanCreating a Business PlanCreating a Business PlanCreating a Business Plan• Business plan:Business plan: written document that written document that

provides an orderly statement of the provides an orderly statement of the company’s goals, the methods by which it company’s goals, the methods by which it intends to achieve those goals, and the intends to achieve those goals, and the standard by which it will measure standard by which it will measure achievementsachievements

• Typically includes following components:Typically includes following components:• Executive summaryExecutive summary• IntroductionIntroduction• MarketingMarketing• FinancialsFinancials• Resumes of principlesResumes of principles

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Small Business AdministrationSmall Business AdministrationSmall Business AdministrationSmall Business Administration

• Small Business Administration Small Business Administration (SBA):(SBA): federal agency that assists federal agency that assists small businesses by providing small businesses by providing management training and consulting, management training and consulting, financial advice, and support in financial advice, and support in securing government contractssecuring government contracts

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• Financial AssistanceFinancial Assistance• Guarantees loansGuarantees loans

• Other Specialized AssistanceOther Specialized Assistance• Government procurement Government procurement

set-aside programsset-aside programs• Information and adviceInformation and advice

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• Business incubator:Business incubator: organization organization that provides low-cost, shared that provides low-cost, shared facilities to small, start-up venturesfacilities to small, start-up ventures

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• Corporations often devise special Corporations often devise special programs aimed at solving small-programs aimed at solving small-business problemsbusiness problems• Recognition of the size of the small-Recognition of the size of the small-

business market, its growth rate and business market, its growth rate and buying power, and the financial rewards buying power, and the financial rewards of supporting small businessesof supporting small businesses

Large Corporations Assisting Large Corporations Assisting Small BusinessesSmall BusinessesLarge Corporations Assisting Large Corporations Assisting Small BusinessesSmall Businesses

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Figure 5.6Figure 5.6 UPS: A UPS: A

Large Firm Large Firm Providing Providing Specialized Specialized Services for Services for Small Small BusinessBusiness


SMALL-BUSINESS OPPORTUNITIES SMALL-BUSINESS OPPORTUNITIES FOR WOMEN AND MINORITIES FOR WOMEN AND MINORITIES SMALL-BUSINESS OPPORTUNITIES SMALL-BUSINESS OPPORTUNITIES FOR WOMEN AND MINORITIES FOR WOMEN AND MINORITIES

• Women-owned and minority-Women-owned and minority-owned businesses are growing owned businesses are growing much faster than than the overall much faster than than the overall growth in U.S. businessesgrowth in U.S. businesses

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Women-Owned BusinessesWomen-Owned BusinessesWomen-Owned BusinessesWomen-Owned Businesses

• Over 28 million women-owned Over 28 million women-owned firmsfirms

• Almost 40 percent of U.S. Almost 40 percent of U.S. businesses businesses

• Provide employment for almost 28 Provide employment for almost 28 million peoplemillion people

• 1 of every 8 owned by minority 1 of every 8 owned by minority women women


Minority-Owned BusinessesMinority-Owned BusinessesMinority-Owned BusinessesMinority-Owned Businesses

• Growth in number of Growth in number of businesses owned via a businesses owned via a African-Americans, African-Americans, Hispanics, and Asian Hispanics, and Asian Americans has far out past Americans has far out past the growth in number of the growth in number of U.S. businesses overall U.S. businesses overall recentlyrecently

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Figure 5.7 Types of Businesses Owned by Racial and Ethnic Minorities

Figure 5.7 Types of Businesses Owned by Racial and Ethnic Minorities


THE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVE

• Franchising: Contractual agreement that specifies the methods by which a dealer can produce and market a product

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• Franchising growing rapidly

• U.S. franchises generate $1 trillion in sales annually and employing over 8 million people

• Franchising is also popular overseas

FranchisingSector

FranchisingSector

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THE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVETHE FRANCHISING ALTERNATIVE• Franchisee: small

business owner who contracts to sell the goods or service of the franchisor in exchange for some payment

• Franchisor: owner of the franchise

• Franchisor typically provides name recognition, building plans, site selection help, accounting systems, and other services

FranchisingSector

FranchisingAgreementsFranchisingAgreements

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• Advantages include:• A prior performance

record• Recognizable company

name• Business model that has

proven successful• Tested management

program• Business training

FranchisingSector

FranchisingAgreements

Benefits and Problemsof Franchising


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• Disadvantages include:• Expensive franchise fees

and future payments• The fact that the

franchisee is linked to the reputation and management of the franchise

• The potential unsuitability of the franchisee

FranchisingSector

FranchisingAgreements



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SMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBAL

• Role of the Internet in Role of the Internet in International ExpansionInternational Expansion• Global reach of the Internet Global reach of the Internet

allows companies to reach allows companies to reach international markets quicklyinternational markets quickly

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SMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBALSMALL BUSINESS GOES GLOBAL

• Growth Strategies for Small Growth Strategies for Small BusinessesBusinesses• Licensing agreements allow firms to Licensing agreements allow firms to

grow without major capital investmentgrow without major capital investment• Export management, and export Export management, and export

trading, companies allow small firms trading, companies allow small firms to achieve exporting successto achieve exporting success

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ALTERNATIVES FOR ALTERNATIVES FOR ORGANIZING A BUSINESSORGANIZING A BUSINESSALTERNATIVES FOR ALTERNATIVES FOR ORGANIZING A BUSINESSORGANIZING A BUSINESS• Sole proprietorships are Sole proprietorships are

the most common form the most common form of business ownershipof business ownership

Figure 5.8 Forms of Business Ownership



Sole ProprietorshipsSole ProprietorshipsSole ProprietorshipsSole Proprietorships

• Sole proprietorship:Sole proprietorship: form of form of business ownership in which business ownership in which the company is owned and the company is owned and operated by one personoperated by one person

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PartnershipsPartnershipsPartnershipsPartnerships

• Partnership:Partnership: form of business form of business ownership in which the company ownership in which the company is operated by two or more is operated by two or more people who are co-owners by people who are co-owners by voluntary legal agreementvoluntary legal agreement

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CorporationsCorporationsCorporationsCorporations

• Corporation:Corporation: business that business that stands as a legal entity with stands as a legal entity with assets and liabilities separate assets and liabilities separate from those of its owner(s)from those of its owner(s)

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Figure 5.9 Double Taxation: A Disadvantage of the Corporate Form of OrganizationFigure 5.9 Double Taxation: A Disadvantage of the Corporate Form of Organization


Changing Legal Structures to Meet Changing Legal Structures to Meet Changing NeedsChanging NeedsChanging Legal Structures to Meet Changing Legal Structures to Meet Changing NeedsChanging Needs• Considerations of the appropriate Considerations of the appropriate

legal structure include:legal structure include:• Personal financial situations and the Personal financial situations and the

need for additional fundsneed for additional funds• Management skills and limitationsManagement skills and limitations• Management styles and capabilities Management styles and capabilities

for working with othersfor working with others• Concerns about exposure to personal Concerns about exposure to personal

liabilityliability© PhotoDisc


ORGANIZING AND OPERATING A ORGANIZING AND OPERATING A CORPORATIONCORPORATION


• A firm is considered a domestic corporation in the state where it is incorporated

• When company does business in a state other than the one where it has filed incorporation papers, it is registered as a foreign corporation in each of those states

Types of Corporations


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• A firm incorporated in one nation that operates in another is known as an alien corporation where it operates

• Multinational corporations are firms with significant operations and marketing activities outside of their home countries



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• Procedures for creating a new corporation include decisions about:• Where to Incorporate• The Corporate Charter


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The Incorporation Process



Figure 5.10 Articles of Incorporation

Figure 5.10 Articles of Incorporation




• Depending on its size, a corporation will have some or all of the ownership and management levels shown in the figure on the next slide . . .


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Corporate ManagementCorporate

Management


Figure 5.11 Levels of Management in a Corporation

Figure 5.11 Levels of Management in a Corporation




• Stockholders: people who buy shares of stock in a corporation and are entitled the profits

• Stock Ownership and Stockholder Rights• Preferred stock owners have

limited voting rights; receive dividends before others

• Common stock owners have voting rights but only residual claims on assets and are the last to receive any income distributions


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Management




• Board of Directors: the elected governing body of a corporation• Sets policy, authorizes major

transactions, and hires and supervises the CEO

• Corporate Officers and Managers• Make most major corporate

decisions


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Management




• Employee ownership: where workers buy shares of stock in the company that employees them

• Corporate ownership stays the same• Most stockholders are

also employees


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Corporate Management

Employee-OwnedCorporations

Employee-OwnedCorporations




• Organizations that pursue objectives other than returning profits to owners

• Include:• Museums• Libraries• Religious and human-service

organizations• Zoos• Thousands of other groups


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Corporate Management

Employee-ownedCorporations

Not-for-ProfitCorporationsNot-for-ProfitCorporations


Figure 5.12 Web Site for a Not-for-Profit CorporationFigure 5.12 Web Site for a Not-for-Profit Corporation


WHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCES

• Mergers and AcquisitionsMergers and Acquisitions• Merger:Merger: combination of two combination of two

or more firms to form one or more firms to form one companycompany

• Acquisition:Acquisition: procedure in procedure in which one firm purchases the which one firm purchases the property and assumes the property and assumes the obligations of anotherobligations of another

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Figure 5.13 Spending on U.S. Mergers and Acquisitions

Figure 5.13 Spending on U.S. Mergers and Acquisitions


WHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCESWHEN BUSINESS JOIN FORCES

• Joint Ventures – Joint Ventures – Specialized PartnershipsSpecialized Partnerships• Joint Venture: a partnership Joint Venture: a partnership

between companies formed between companies formed for a specific undertakingfor a specific undertaking

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PUBLIC AND COLLECTIVE PUBLIC AND COLLECTIVE OWNERSHIPOWNERSHIPPUBLIC AND COLLECTIVE PUBLIC AND COLLECTIVE OWNERSHIPOWNERSHIP• Public OwnershipPublic Ownership

• When a unit or agency of government When a unit or agency of government owns and operates an organizationowns and operates an organization

• Government-Owned CorporationsGovernment-Owned Corporations• Used When:Used When:

• Private investors are not willing to invest Private investors are not willing to invest in high-risk projectsin high-risk projects

• When private ownership has failedWhen private ownership has failed• Operating public companies can be used Operating public companies can be used

to foster competitionto foster competition © PhotoDisc


• Customer-Owned Businesses: Cooperatives • Cooperative:Cooperative: an organization whose an organization whose

owners join forces to collectively operate owners join forces to collectively operate all or part of the functions in their all or part of the functions in their industryindustry

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PUBLIC AND COLLECTIVE PUBLIC AND COLLECTIVE OWNERSHIPOWNERSHIPPUBLIC AND COLLECTIVE PUBLIC AND COLLECTIVE OWNERSHIPOWNERSHIP


WHAT’S AHEADWHAT’S AHEADWHAT’S AHEADWHAT’S AHEAD• Examination of the differences Examination of the differences

between a small-business owner between a small-business owner and an entrepreneurand an entrepreneur

• Identification of personality Identification of personality traits typical of entrepreneurstraits typical of entrepreneurs

• Summarize the process of Summarize the process of launching a new venturelaunching a new venture

• Explores a method for infusing Explores a method for infusing the entrepreneurial spirit into the entrepreneurial spirit into established firmsestablished firms

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Documents

Copyright © 2003 by South-Western. All Rights Reserved. CHAPTER FIVE OPTIONS FOR ORGANIZING SMALL AND LARGE BUSINESSES Text by Profs. Gene Boone & David