MGT 111 Chapter 5 & 6

Importance of small businesses

- 65% of the nations new jobs are in small businesses - More personal customer service - Ability to respond quickly to opportunities

Cooperative (Co-Op)

- A business owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain - Serve one billion members worldwide - Members democratically control the business by electing a board of directors that hires professional management - Other cooperatives are former to give members more economic power as a group than they have as individuals, such as a farm cooperative

Writing business plan

- A good plan takes a long time to prepare - A good executive summary catches interest and tempts potential investors to read on - Getting the plan into the right hands is almost as important as getting the right information in it

Conventional ( C ) corporation

- A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders) - Enables many people to share in ownership

S corporations

- A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships - Have shareholders, directors and employees, plus the benefits of limited liability - Profits are taxed only as the personal income of the shareholders

Benefits of a home-based businesses

- Ability to start your business immediately - Minimal start-up capital needed - No rent or excessive set-up charges - Comfortable working conditions - Reduced wardrobe expenses - No commuting - Tax benefits - Elimination of office politics - Low risk for trial and error

Entrepreneurship

- Accepting the risk of starting and running a business - You're never too old or young to be an entrepreneur - More americans are working over the age of 65 - Since 1996, older americans have opened businesses at a higher rate than those aged 20 to 34 - Older entrepreneurs have greater experience and more financial resources

Individuals can incorporate

- Anyone - truckers, doctors, plumbers, athletes and small business owners - can incorporate - Stock is normally not issued to outsiders when individuals incorporate, so they do not share the advantages and disadvantages of large corporations - Major advantages are limited liability and possible tax benefits

Even smaller franchises are going global

- Canada is the most popular target for U.S. -based franchises, but so is China, South Africa, the Philippines, and the Middle East - They offer the same advantages as in the U.S.: convenience and a predictable level of service and quality - Adapting products and brand names to different countries creates challenges - Foreign franchises also come to the U.S.

Entrepreneurial teams can

- Combine their creative skills with production and marketing skills form the start - Ensure more cooperation and coordination among functions

Reasons for growth of home-based businesses

- Computer technology has leveled the playing field - Corporate downsizing has led to many venture on their own - Social attitudes have changed - New tax laws have loosened restrictions on deducting expenses for home offices

Downsides of home-based businesses

- Difficult to establish work habits - Limited support system Isolation - Workspace may be limited - Clients may be uncomfortable coming to your home - Zoning restrictions - Success is based 100 percent on your efforts

Technological advances have helped growth Hurdles include

- Difficulty in finding finances - Not knowing how to get started - Not understanding cultural differences - Too much bureaucratic paperwork

Advantages of Sole Proprietorship

- Ease of starting and ending the business - Being your own boss - Pride of ownership - Leaving a legacy

Notable entrepreneurs

- French immigrant Élruthère Irènèe du Pont de Nemours started DuPont in 1802 - David mcConnell borrowed $500 from a friend to start Avon - George Eastman started Kodak with $3,000 investment in 1880 - Jeff Bezos started Amazon with investments from his family and friends

Challenges of home-based businesses:

- Getting new customers is difficult - Managing your time requires self-discipline - Work and family tasks are sometimes not separated - Government ordinances may restrict your business - Homeowner's insurance may not cover business-related claims

Qualifications for S corporations

- Have no more than 100 shareholders - Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. - Have only one class of stock - Derive no more than 25% of income from passive sources - If an S corporation loses its S status, it may not operate under it again for at least 5 years

Managing your employees

- Hiring, training and motivating employees is critical - Employees of small companies are often more satisfied with their jobs because they feel challenged and respected - Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions

Encouraging entrepreneurship: what government can do

- Immigration act passed in 1990 created a category of "investor visas" that encourage entrepreneurs to come to the U.S. - Jumpstart our business startups (JOBS) Act of 2012 offers tax breaks in order to raise funds and create jobs - The self-employment assistance (SEA) program allows participants to collect self-employment payments instead of regular unemployment checks - Combination of private and public sectors

Online businesses

- In 2019, online retail sales in the U.S. reached over $365 billion, or approximately 12 percent of all retail sales - They must offer unique products or services - It is easy for copycats to copy your successful products and sell imitations on other sites

Disadvantages of corporations

- Initial cost - Extensive paperwork - Double taxation - Two tax returns - Size - Difficult of termination - Possible conflict with stockholders and board of directors

Home-based franchises Disadvantages

- Isolation - Long hours

An idea is a good opportunity if

- It fills customers needs - You have the skills and resources to start a business - You can sell the product or service at a reasonable price and profit - You can get your product or service to customers before the window of opportunity closes - You can keep the business going

Limited liability companies

- LLCs are similar to an S corporation but without the special eligibility requirements - More than half of new business registrations in some states are LLCs

Disadvantages of franchises

- Large start-up costs - Share profit - Management regulations - Coattail effects - Restrictions on selling - Fraudulent franchisors

Advantages of corporations

- Limited liability - Ability to raise more money for investment - Size - Perpetual life - Ease of ownership change - Ease of attracting talented employees - Separation of ownership from management

Advantages of LLCs

- Limited liability - Choice of taxation - Flexible ownership rules - Flexible distribution of profits and losses - Operating flexibility

Advantages of franchises

- Management and marketing assistance - Personal ownership - Nationally recognized name - Financial advice and assistance - Lower failure rate

Knowing your customers

- Market - people with unsatisfied needs and wants who have both resources and willingness to buy - Set out to fill the market's needs by offering top quality and great service at a fair price - One of the great advantages of small businesses is the ability to know the market and quickly adapts to the market needs

Looking for help

- May need outside advice in legal, tax, accounting, marketing or finance, - An experienced lawyer who knows and understands small businesses can help with leases, contracts, partnership agreements, and protection against liabilities - Consider and independent marketing research study - Commercial loan officers and insurance agents are important resources

Advantages of partnerships

- More financial resources - Shared management and pooled/complementary skills and knowledge - Longer survival - No special taxes

Keeping records

- Need accurate accounting and recordkeeping - Many business failures are caused by poor accounting practices that lead to costly mistakes

Disadvantages of LLCs

- No stock; ownership is nontransferable - Fewer incentives - Taxes - Paperwork

Four major reasons Why people take the entrepreneurial challenge

- Opportunity - Profit - Independence - Challenge

Advantages of global trade for small businesses:

- Overseas buyers enjoy dealing with individuals - They can usually begin shipping much faster - They provide a wide variety of suppliers - They can give more personal service and attention

Home-based franchises Advantages

- Relief from commuting stress - Extra family time - Low overhead expenses

What does it take to be an entrepreneur?

- Self-directed - Self-nurturing - Action-oriented - Highly energetic - Tolerant of uncertainty

Disadvantages of partnerships

- Unlimited liability - Division of profits - Disagreements among partners - Difficult of termination

Disadvantages of sole proprietorships

- Unlimited liability - the responsibility of business owners for all debts of the business - Limited financial resources - Management difficulties - Overwhelming time commitment - Few fringe benefits - Limited growth - Limited life span

Diversity in franchising

- Women own about half of U.S. companies, yet ownership of franchises is about 35 percent - More women are becoming franchisors, such as those who started Auntie Anne's, decorating den, and build-a-bear workshops - Minorities own less than 19% of businesses, yet over 30% off franchises are minority-owned - Diversity and federal minority business development agency build awareness of franchising opportunities within minority communities and provide training and support

Five reasons to start your business right away

- You have potential for long-term returns! - You don't have a mortgage or kids to take care of - You can survive on little funds and work long hours - No disruption to your career path. It hasn't started yet! - You're more adaptable and have higher risk tolerance at a younger age

Small business

- a business that is independently owned and operated, is not dominant in its field of operation and meets certain standards of size (set by the small business administration) in terms of employees or annual receipts - Businesses are "small" in relation to other businesses in their industries - There are over 30 million small businesses in the United States

Merger

- the result of two firms forming one company - Mergers between competitors must be proved to the federal trade commission. (FTC) that the new combined company does not limit competition unfairly

Corporations make up...

20% of U.S. businesses 81% of revenue

Sole Properitorships make up...

72% of U.S. businesses Generate 6% of revenue in U.S.

Partnerships make up...

8% of U.S. business 13% of revenue

Entrepreneurial teams

A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make, and market a new product.

Some reasons for failure are:

About half do not last five years - Managerial incompetence - Inadequate financial planning - Choosing the wrong type of business

Banks and finance institutions

Community development financial institutions (CDFIs) loan money and provide counseling, especially for lower income families

Intrapreneurs use a company's existing resources to launch new products for the company

Examples include: 3M's post it notes, apples mac computer, sony's playstation

Small business development centers (SBDC) are funded jointly by the federal government and individual states

Help evaluate the feasibility of ideas, develop business plans, and complete the funding application - for no charge.

Small business administration (SBA)

a U.S. government agency that advises and assists small businesses by providing management training and financial advice and loans - Started a microloan program in 1991 providing very small loans to small-business owners - The program judges worthiness based on the borrowers integrity and soundness of their business ideas

Sole Proprietorship

a business owned and managed by a single individual

Business plan

a detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition and the resources and qualifications of the owners ... - Forces potential owners to be specific about what they will offer - Mandatory for talking with bankers or investors - Detailed written nature of the business Target market is talked about - Advertising

Crowdfunding

a large group of individuals provide donations in support of a company or product

Corporation

a legal entity with authority to act and have liability separate from its owners

Partnership

a legal form of business with two or more owners

General partnership

a partnership in which all owners share in operating the business and in assuming liability for the businesses debts

Limited partnership

a partnership with one or more general partners and one or more limited partners

Small business investment company

a program through which private investment companies licensed by the SBA lend money to small businesses - Must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has - Keeps defaults low by identifying a business's trouble spots early, giving entrepreneurs advice and rescheduling loan payments

Franchise agreement

an agreement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to other (franchisees) in a given territory - Can be formed as a sole proprietorship, a partnership, or a corporation - More than 733,000 franchised businesses operate in the U.S., creating 7.6 million jobs

general partner

an owner (partner) who has unlimited liability and is active in managing the firm

Limited partner

an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment

Incubators

centers that offer new businesses low-cost offices with basic business services - gov +univ

Intrapreneurs

creative people who work as a entrepreneurs within corporations

Micropreneurs

entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers them a balance lifestyle - More than half of U.S. micropreneurs are home-based - Many are owned by people combining career and family

Conglomerate merger

he joining of firms in completely unrelated industries

Venture capitalists

individuals or companies that invest in new businesses in exchange for partial ownership of those businesses

Acquisition

one companies purchase of the property and obligations of another company

Angel investors

private individuals who invest their own money in potentially hot new companies before they go public

Enterprise zones

specific geographic areas to which governments try to attract private business investment by offering lower taxes and other government support - lower tax

Vertical merger

the joining of two companies in different stages of relate businesses

Horizontal merger

the joining of two firms in the same industry

Limited liability

the responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders have limited liability