Business Exam 2

Traits of successful entrepreneurs

- Innovative - Risk takers - Motivated to succeed - Flexible and self-directed - Work well with others - Good leadership skills -"System thinkers"

A small business

- Is independently owned and operated - Is not a dominant force in its field - In general, has fewer than 500 employees - Has annual revenue less than $7 million annual revenue (in retail industries) Generate 64% of net new jobs Create nearly one-half of U.S. GDP Export about one-third of all U.S. exports of goods and services Represents the second largest economy in the world

Mission and visions statements

A mission statement should spell out what the founder ultimately envisions the business to be with respect to growth, values, and contributions to society.

The Product

Describe the product or service List any completed product testing List any trademarks, copyrights, patents List ongoing services such as warranties Explain how the product will be produced Provide a detailed pricing strategy

advantages of a sole proprietorship

Ease of formation Greater control and flexibility No separate tax return Business losses can offset personal income

Pros of a franchise

It is a proven system of operation There is strength in numbers Initial training is part of the deal Marketing support is provided Market research is often provided

Assessment of the competition

It's important to show that you have a clear understanding of your competition. Therefore, you should list your main competitors and their perceived strengths and weaknesses. You should then clearly articulate your plan to take advantage of their weaknesses and respond to their strengths.

Market Analysis

Market research Assess the competition

Due Diligence

Research and analysis of the business to uncover any hidden problems associated with it

Appendices

Résumés of key managers Pictures of product, facilities, production, and so on Letters of recommendations, professional references Published information Contracts and agreements; copies of patents, copyrights, trademarks Media, articles

Lifestyle entrepreneurs

They look for a certain lifestyle when they begin their business, such as freedom from corporate bureaucracy, the opportunity to work at home, or flexibility in work hours or travel schedules

Product extension merger

Two companies selling different but related products in the same market

Vertical merger

Two companies that have a company/customer relationship or a company/supplier relationship, such as Walt Disney and Pixar

Conglomeration

Two companies that have no common business areas merge to obtain diversification

Market extension merger

Two companies that sell the same products in different markets

Horizontal merger

Two companies that share the same product lines and markets and are in direct competition with each other

disadvantages of a sole proprietorship

Unlimited liability Potential difficulty in borrowing money

bank loans and lines of credit

about half of small businesses use this

Entrepreneurs Organization (EO)

connect business owners with experts in their industry for individual mentoring

Venture capitalists

contribute money to a business in return for some form of equity. Venture capitalists want to invest in "older" businesses that have the potential to become larger regional or national companies. Venture capitalists sometimes require that they play an active role in the management of the company.

publicly-owned corporations

corporations whose stock are owned by more than 25 stockholders and are regulated by the Securities and Exchange Commission.

Internet entrepreneurs

create businesses that operate solely online.

Social entrepreneurs

set out to create innovating solutions in the social sector.

Directors—or the board of directors

set policy for the corporation and make the major business and financing decisionselects corporate officers and ensures the corporate managers are doing their job

tender offer

where the acquiring firm offers to buy the target company's stock at a price higher than its current value to induce shareholders into selling.

Why Do Small Businesses Fail?

Accumulating too much debt Inadequate management Poor planning Unanticipated personal sacrifices

Opportunity knocks

An idea for a new company often starts with envisioning a product or service that isn't being offered yet. Other people create opportunities from their own obstacles

hostile takeovers

An unfriendly acquisition occurs when one company tries to take control over another company against its wishes

The Cover Sheet andTable of Contents

Basic company information Company logo Contact information Month and year Preparers' names Document number

The Executive Summary

Convey excitement Organize content Highlight key points

Small Business and the Workforce

Create about 64% of new jobs each year Employ many who do not fit into a traditional corporate structure Provide opportunities for women and minorities

Pros of buying an existing business

Ease of start-up Existing customer base Financing opportunities

Financials

Financial statements Income statement Balance sheet Cash flow statement Historical and forecasted data

Small Business Contributions

Foster innovation Help bigger companies: - Supply products and services to the larger companies that they do not or cannot supply Help consumers: - Supply products and services that large companies cannot or will not provide

Cons of buying an existing business

High purchase price Inheriting the previous owner's mistakes Unknowns in transition

Cons of a franchise

Lack of control Start-up costs Workload Competition Share common problems

advantages of corporations

Limited liability for shareholders Extended life and ownership transfer Raising capital Tax benefits

Social media impacts

Low-cost means of marketing. - Create opportunity to pretest product ideas and advertise upcoming promotions. - However, business owners must monitor and update social networking pages in order to stay informed as to what costumers are saying about the business.

The Company and Management Team

Mission and visions statements Industry profile Company profile and strategy Anticipated challenges and planned responses Management team

advantages of partnerships

More owners to contribute capital and effort Shared managerial and financial responsibility Utilize complementary skills Easy to form Business losses can offset personal income

disadvantages of partnerships

Must share control—and profits Need the "right" partner Differences in opinion on company's direction Unlimited liability

Reasons to Start a Small Business

Opportunity knocks financial independence control Flexibility unemployment

Bootstrap financing

Personal savings Borrowing from friends and family Trading with vendors or clients

Disadvantages of Mergers

Poor integration Conflicting corporate cultures Power struggles in management team Employee turnover

Sales and Promotion

Product promotion including advertising Social media strategy Selling approach Evidence of past promotional success

disadvantages of corporations

Reporting requirements Double taxation

advantages of S corporations

S corporations do not pay corporate income taxes, the shareholders in an S corporation pay income taxes based on their proportionate share of the business profits and pay the taxes through their own individual tax returns. The beauty of an S corporation is that it offers the best of both worlds: profits and losses pass through to the shareholders, and the corporate structure provides some limitations on personal liability. S corporation does not assume liability for an owner's personal wrongdoings. This is true for any corporate structure.

According to the U.S. Internal Revenue Code, to be an S corporation:

The company must not have more than 100 shareholders Shareholders must be U.S. citizens or residents. The company must issue only one class of stock. The company must distribute proportionately all profits and losses to each shareholder based on each one's interest in the business.

Company profile and strategy

The company profile provides details regarding how the business works and why it has a unique chance to impact the industry. The company strategy summarizes the company's plans for growth and profits

Industry profile

The industry profile describes the context in which the business will operate. This section discusses economic trends that affect the business and provides background on the industry, the current outlook for the industry, and a brief discussion of future growth potential.

Micropreneurs

They start their own business but are satisfied with keeping the business small. They have no aspirations of growing large and/or hiring hundreds or thousands of employees

Anticipated challenges and planned responses

This section of the business plan discusses potential vulnerabilities from competition, suppliers, resources, industry, or economic situations. It also discusses legal factors that might affect the business—either positively or negatively—including changes to legal restrictions, pending lawsuits, expiring patents, copyrights, and the like. This section should also state possible resources the company could make available should the need arise. Finally, the section should mention any protection from copyrights, trademarks, or patents

Market research

This section should contain an analysis of the market to determine whether enough customers exist and will continue to exist to make your product/service profitable now and in the future. First, you need to describe exactly what you see as the market for your product—who is your customer? Is your market teenagers, sophisticated adults, or families? Once you've identified and described your customer, you need to determine whether the market is growing or shrinking. Your analysis should reach the conclusion that the market is big enough for you to enter with adequate growth potential to make your time and investment worthwhile.

Management team

This section should list members of the management team—finance, marketing, and production specialists—and the pertinent experience, knowledge, or creative ability that each member brings to the team. Résumés of key personnel should be attached to the back of the business plan, so dedicate only a paragraph or two to each individual.

sole proprietorship

a business owned, and usually operated, by a single individual

Credit cards

a convenient means of acquiring cash, and nearly 50 percent of small business owners use credit cards as a source of financing. The risk is the high rate of interest charged on unpaid balances

limited-liability company

a distinct type of business that, like an S corporation, combines the corporate advantages of limited liability with the tax advantages inherent in partnerships.

Business plan

a formal document that states the goals of the business as well as the plan for reaching those goals

advisory board

a group of individuals who offer guidance to the new business owner. Such boards are similar to boards of directors in publicly held companies, except that they generally do not have the authority to make decisions. Another option is to team up with partners who offer the company strengths that the new owner does not possess, and in turn share in its profits and liabilities.

entrepreneurial teams

a group of individuals with varied experiences and skills that come together to form a new venture.

S corporation

a regular corporation (a C corporation) that has elected to be taxed under a special section of the Internal Revenue Service code called Subchapter S. S corporations have shareholders like C corporations. S corporations must comply with all other C corporation regulations

corporation

a specific form of business organization that is legally formed under state laws. A corporation is considered a separate entity apart from its owners; therefore, a corporation has legal rights like an individual, so a corporation can own property, assume liability, pay taxes, enter into contracts, and can sue and be sued—just like any other individual

partnership

a type of business entity in which two or more owners (or partners) share the ownership and the profits and losses of the business. Like a sole proprietorship, a partnership is easily formed. There are no special forms required, although a partnership agreement is recommended. Also, like a sole proprietorship, many partners will have unlimited liability.

partnership agreement

a written document to formalize the relationship among business partners. The following items should be in the agreement: Capital contributions Responsibilities of each partner Decision-making process Shares of profits or losses Departure of partners Addition of partners

Capital contributions

amount of capital including money, equipment, supplies, computers, and any other tangible thing of value, that each partner contributes to begin the business and how additional capital can be added

not-for-profit corporation

an incorporated business that does not seek a profit and instead utilizes revenue available after normal operating expenses for the corporation's declared social or educational goals.

Small Business Administration

an independent agency of the U.S. government whose sole purpose is to cater to the needs of small businesses. The SBA offers assistance in the legalities associated with beginning and operating a business as well as education and training, financial assistance, disaster assistance, and counseling.

Small Business Administration

an independent agency of the federal government that was formed to aid, counsel, assist, and protect the interests of small businesses. It defines a small business as "one that is independently owned and operated and which is not dominant in its field of operation."

Officers

are elected by the board of directors and are responsible for the daily operation and management of the company. Typical officers include the President (or Chief Executive Officer), Chief Financial Officer, and Chief Operating Officer. Any "officer" position can be formed if it makes sense for the company. In large companies, the responsibilities of each officer are demanding enough that separate positions are necessary. In smaller companies, only one or two persons might perform the role of several different officers.

Cooperatives

are not owned by outside investors, but by members Members can be individuals or businesses. Members set policy and elect directors

Social intrapreneurs

build and develop ventures within a company that are designed to identify and solve large-scale problems.

Home-based

entrepreneurs run their businesses out of their homes

Grants

from federal and state governments may also be available, but they usually require a lot of paperwork to apply

Limited partnerships

general partners are full owners of the business, are responsible for all the day-to-day business decisions, and remain liable for all the debts and obligations of the business. Limited partners are involved as investors and as such are personally liable only up to the amount of their investment in the business and must not actively participate in any decisions of the business very complex

Sarbanes-Oxley Act of 2002

includes a new set of standards of accountability for the board of directors. If the members of a board of directors ignore their responsibilities of managing the internal controls of a company, they incur the risk of long prison sentences and huge fines.

intrapreneurs

intrapreneurs—employees who work in an entrepreneurial way within the organizational environment. The company encourages them to generate ideas that will enhance the company's existing products or market

franchise

is a method of doing business whereby the business (the franchiser) sells a company's products or services under the company's name to independent third-party operators (the franchisees).

acquisition

occurs when one company completely takes over another company. The purchased company ceases to exist, and it operates and trades under the buying company's name. Acquisitions are not always welcome

merger

occurs when two companies come together to form one company. Generally, it implies that the two companies involved are about the same size and have mutually agreed to form a new combined company

Service Corp of Retired Executives (SCORE)

offer workshops and counseling to small businesses at no cost experienced volunteers part of SBA

Business incubators

organizations that support start-up businesses by offering resources such as administrative services, technical support, business networking, and sources of financing that a group of start-up companies share. Incubators can be either private organizations or public services. Many cities and developing countries have started public business incubators

Shareholders

owners of the company have no involvement in the direct management of the corporation influence corporate decisions by electing directors, overseeing bylaws and the articles of organization (the title of the document filed to create a corporation), and voting on major corporate issues

Entrepreneurs

people who assume the risk of creating, organizing, and operating a business. Entrepreneurs most often start a business to satisfy a niche or need in the market that is not being adequately fulfilled

Crowdfunding sites

solicit small amounts of money from a large number of people for startup businesses

Growth entrepreneurs

strive to create fast-growing businesses and look forward to expansion. The companies that these types of entrepreneurs create are known as gazelles. Typically, a gazelle business has at least 20 percent sales growth every year for five years, starting with a base of at least $100,000. eBay and Google can be identified in retrospect as having been gazelles in their early years

Serial entrepreneurs

such as Ted Turner and Richard Branson, are known for starting multiple new ventures.

Unlimited liability

that if business assets aren't enough to pay business debts, then personal assets, such as the sole proprietor's house, personal investments, or retirement plans, can be used to pay the balance

general partnership

the "default" arrangement for a partnership and is therefore the simplest of all partnerships to form. In a general partnership, each partner has unlimited liability for the debts and obligations of the partnership, meaning every partner is liable for his or her own actions, as well as those actions of the other partners and the actions of any employees.

proxy fight

the acquiring company tries to persuade the target company shareholders to vote out existing management and to introduce management that is sympathetic to the goals of the acquiring company

Synergy

the idea that when two companies combine, the result is better than each company could achieve individually. Operating or financial economies of scale usually drive synergy as combined firms often lower costs by trimming redundancies in staff, sharing resources, and obtaining discounts accessible only to a larger firm.

privately held or closed corporations

there are fewer shareholders, and they are generally involved in the management and daily operations of the business. The shares of privately held corporations are not traded on public stock exchanges

Angel investors

wealthy individuals willing to put up their own money in hopes of a profit return. They tend to fund more projects with lesser amounts of money than venture capitalists. In addition, angel investors can be more patient and may take on a more active advisory role rather than a direct management role.