entrepreneurship and small business. what is “small business”? independently owned and managed...
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Entrepreneurship and Small Business
What Is “Small Business”?
Independently owned and managed business that does not dominate its market
What Is “Small Business”?
A small business serves a limited geographic area, employs fewer than 500 people, and is not dominant in its industry.
ServicesRetailingConstructionFinancialInsuranceWholesalingTransportationManufacturing
Popular Areas of Small Business Enterprise
Services37.6%Retailing
22.7%
Manufacturing5%
Finance &Insurance
10%
Construction10%
Transportation5%
Other1.7%
Wholesale8%
Advantages of Small Business Advantages of Small Business
Some of the advantages of owning a small business are:
• Being the boss• Offering services large companies
cannot offer• Ease of formation
Disadvantages of Small Business Disadvantages of Small Business
When you’re a small business owner, you’re responsible for decisions.
You often work long hours and have great financial responsibility.
About four out of five small businesses fail in their first five years.
Disadvantages of Small Business Disadvantages of Small Business
Small business owners may mistake the freedom of being in business for oneself for the liberty of working or not.
Disadvantages of Small Business Disadvantages of Small Business
A small business may underprice or overprice goods or services.
Going into business with little or no experience may result in the business closing.
Disadvantages of Small Business Disadvantages of Small Business
Why a small business might not work:1. Effect of Change
Consumers’ tastes change. If flexibility and change are not part of the business, then it’s likely to fail.
Disadvantages of Small Business Disadvantages of Small Business
2. Managerial Skills NeededA small business owner must have multiple skills including:• Financing• Employee relations
continued
Why a small business might not work:
Disadvantages of Small Business Disadvantages of Small Business
Managerial Skills Needed
• Production• Customer Relations
Disadvantages of Small Business Disadvantages of Small Business
Starting with little money, spending carelessly, borrowing money without planning, and forgetting about taxes and insurance may result in a failure.
3. Inadequate Financial Planning
Disadvantages of Small Business Disadvantages of Small Business Why a small business might not work:
Types of Business Organizations
Type of BusinessType of Business
73%73% 7%7% 20%20%
Sole ProprietorshipSole Proprietorship PartnershipPartnership CorporationsCorporations
Sales RevenueSales Revenue
5%5%
6%6%
89%89%
Comparative Summary: Three Forms of Business
Business Form
Liability Continuity ManagementInvestment
Sources
Personal, unlimited
Ends with death or decision of owner
Personal, unrestricted
Personal
Personal, unlimited
Ends with death or decision of any partner
Unrestricted or depends on partnership agreement
Personal by partner(s)
Capital invested
As stated in charter, perpetual or for specified period of years
Under control of board of directors, which is selected by stockholders
Purchase of stock
Proprietorship
General Partnership
Corporation
Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 4 - 4 - 1515
Advantages:
Freedom
Simple to form
Low start up costs
Tax benefits
Disadvantages:
Unlimited Liability
Sole Proprietorships
Limited resources
Limited fundraising capability
Lack of continuity
Unlimited LiabilityLegal principle holding owners responsible for paying off all debts of a business
Advantages:
More talent and money
More fundraising capability
Relatively easy to form
Tax benefits
Disadvantages:
Unlimited Liability
Partnerships
Disagreements among partners
Lack of continuity
Unlimited LiabilityLegal principle holding owners responsible for paying off all debts of a business
““When two men in business always When two men in business always agree, one of them is unnecessary.”agree, one of them is unnecessary.”
William Wrigley Jr.William Wrigley Jr.
Remember…Remember…
But…But…An exit plan is still crucial!An exit plan is still crucial!
““An artificial being, invisible, intangible, and existing only in contemplation of An artificial being, invisible, intangible, and existing only in contemplation of
the law.”the law.”
What is a Corporation?
Advantages:Limited LiabilityContinuityStronger fundraising capability
Disadvantages:Double TaxationFluid controlComplicated and expensive to form
Corporations
Closely Held (Private) Corporation
Publicly Held (Public) Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational or Transnational Corporation
Types of Corporations
Getting Started
Buying an Existing
Business
Starting From
Scratch
Personal resourcesLoansVenture capital companiesSmall-business investment companiesSmall Business Association (SBA)
Financial aid and management advice
Financing the Small Business
AdvantagesAdvantagesProven business Proven business
opportunityopportunityAccess to Access to
management management expertiseexpertise
AdvantagesAdvantagesProven business Proven business
opportunityopportunityAccess to Access to
management management expertiseexpertise
DisadvantagesDisadvantagesStart-up costsStart-up costs
On-going paymentsOn-going paymentsManagement rules Management rules
and restrictionsand restrictions
DisadvantagesDisadvantagesStart-up costsStart-up costs
On-going paymentsOn-going paymentsManagement rules Management rules
and restrictionsand restrictions
FRANCHISING
An Ownership OpportunityAn Ownership Opportunity