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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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