© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 1

Small Business, Small Business, EntrepreneurshipEntrepreneurship, and , and

FranchisesFranchises

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 2

The Small BusinessThe Small Business

• Independently owned and operated• Not dominant in its field• Relatively small annual sales• Fewer than 500 employees

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 3

Economic Roles of Small Economic Roles of Small BusinessBusiness

• Provide jobs• Introduce new products• Service large corporations• Engage in specialization

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 4

Types of Small BusinessTypes of Small Business

LifestyleLifestyle High-GrowthHigh-Growth

•Run by IndividualsRun by Individuals

•Limited Products/ServicesLimited Products/Services

•Limited ResourcesLimited Resources

•Limited MarketplaceLimited Marketplace

•Run by TeamsRun by Teams

•Multiple Products/ServicesMultiple Products/Services

•Investment CapitalInvestment Capital

•Large MarketplaceLarge Marketplace

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 5

How Entrepreneurs Spend Their How Entrepreneurs Spend Their TimeTime

• Dealing with employees• Keeping records• Direct selling• Production• Maintenance• Dealing with suppliers• Arranging financial matters• Planning growth and change• Other services

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 6

Traits of EntrepreneursTraits of Entrepreneurs• Highly disciplined• Like to control their destiny• Listen to their intuition• Relate well with others• Eager to acquire new skills• Learn from their mistakes

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 7

Characteristics of Characteristics of EntrepreneursEntrepreneurs

• Stay abreast of market changes• Willing to exploit new opportunities• Seldom follow trends• Driven by ambition• Think positively• Prefer risk taking over security

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 8

Factors Contributing to Factors Contributing to Small Business GrowthSmall Business Growth• Technology and the Internet

• Women and minorities

• Downsizing and outsourcing

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 9

Women Starting Women Starting BusinessesBusinesses

• Entrepreneurial idea• Glass ceiling• Bored in job• Downsized• Fell into it• Family event• Born entrepreneur• Reenter workforce

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 10

Starting a Small Starting a Small BusinessBusiness

• Starting a new business• Buying an existing business• Obtaining a franchise

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 11

Starting a New BusinessStarting a New Business

+ Control your destiny+ Reach your potential+ Unlimited profits+ Recognition+ Doing what you enjoy

– Uncertainty of income– Risk of loss– Long hours & hard work– Complete responsibility– High stress levels

Advantages Disadvantages

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 12

Buying an Existing Buying an Existing BusinessBusiness

+ Customer base+ Business systems+ Product or service+ Location+ Financing

– Alienated customers– Obsolescence– Location– Personality clashes– Outstanding receivables

Advantages Disadvantages

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 13

The Franchise The Franchise AlternativeAlternative

• Franchisee• Franchisor• Types of franchises–Product–Manufacturing–Business-format

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 14

The Pros and Cons of The Pros and Cons of FranchisingFranchising

Advantages

Get a viable business

Instant name recognition

Built in support group

Marketing & advertising

Disadvantages

No guarantee of success

Expensive to obtain

High monthly royalties

Limited independence

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 15

How to Evaluate a How to Evaluate a FranchiseFranchise

• What does the initial franchise fee cover?• How are periodic royalties calculated and when are

they paid?• Are all trademarks and names legally protected?• Who provides and pays for advertising and

promotion?• Who selects the location of the business?

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 16

How to Evaluate a How to Evaluate a FranchiseFranchise

• Is the franchise assigned an exclusive territory?• Does the franchisee have the right of first refusal on

additional nearby franchises?• Is the franchisee required to purchase equipment

and supplies from the franchisor?• How can the franchise agreement be terminated?• Can the franchise be assigned to heirs?

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 17

Importance Importance of a Business Planof a Business Plan

• Guides company operations• Outlines a strategy • Attracts lenders and investors

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 18

A Formal Business PlanA Formal Business Plan• Summary• Mission and objectives• Company and industry• Products or services• Market and competition• Management• Marketing strategy

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 19

A Formal Business PlanA Formal Business Plan• Design and development plans• Operations plan• Overall schedule• Critical risks and problems• Financial forecasts and requirements• Exit strategy

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 20

Why New Businesses FailWhy New Businesses Fail•Management IncompetenceManagement Incompetence

•Lack of Industry ExperienceLack of Industry Experience

•Inadequate FinancingInadequate Financing

•Poor Business PlanningPoor Business Planning

•Unworkable GoalsUnworkable Goals

•Diminished Customer BaseDiminished Customer Base

•Uncontrolled GrowthUncontrolled Growth

•Inappropriate LocationInappropriate Location

•Poor System of ControlsPoor System of Controls

•Lack of Entrepreneurial SkillsLack of Entrepreneurial Skills

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 21

Sources of Small Sources of Small Business AssistanceBusiness Assistance

• SCORE• Incubators• The Internet• Small Business Administration

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 5 - 22

Private Sources of Private Sources of FinancingFinancing

• Friends and family• Commercial lenders• Corporate financing• Venture capitalists• Angel investors• Credit cards