Small Business Management Chapter 6

Proprietorship

one person will supply the money

New Business Opportunities

. American private enterprise economy promotes innovation and new business development. . Individuals are able to take the risk to start a new business. Compete with other businesses to sell their products and services and make a profit. . Consumers are always looking for new and better choices to meet their wants and needs. . Open to prospective entrepreneurs. Begins with the creation of new or improved products and services.

Sources of Finances

Finding money may be the most difficult part of starting a business. . The money required to start and operate a new business usually comes from a mixture of owner-supplied and borrowed funds. The source of owner supplied money depends on the ownership structure.

Be Aware of...

. Many risks they may be face and prepare for them. Most entrepreneurs are willing to face risks. Work hard to make their business succeed. . Many entrepreneurs have seen one or more of their businesses ideas fail before they are able to grow a successful company

Preparation and Research

. Most important step in starting a business is preparation. Preparation includes having enough information to make good decisions about the business. . Time spent gathering and studying information before the business is started will save time and avoid later problems. . Information is needed about customers, competitors, important operations, gov't regulations and many other topics. Help you to make right decisions.

Meeting Customers Needs

. Often serve consumers where the number of products and services needed is small or the requirements are too specialized for large businesses to make a profit. . Easier to meet the precise needs of customers than a large businesses . Large Businesses must focus on products and services that meet the needs of a large group of customers. Makes it harder to satisfy the unique needs of single customers. . Small Businesses often aren't able to match the lower operating costs of larger businesses. Can compete by paying attention to their consumers. . Small Businesses serve fewer customers and usually have more frequent contact with those customers than large businesses. More likely to be located close to the customers. Depend less on other businesses to distribute or service their products. . Large businesses often rely on consumer research to gather information. Usually get direct information from their customers about what they like or dislike.

Small Business Assistance

. Small Business owners can get help from a number of sources: Universities and colleges often have persons on their faculties who can give advice and support to people who are starting or having started their own businesses. . Local groups of business people such as Chambers of Commerce have members who can help others with business problems.

Providing Unique Services

. Small Businesses are especially suited to provide unique services for customers. (Plan a wedding or design a customized sound system for your home.) . Providing those types of services means that business representatives must take a special interest in the customer. They spend time determining needs and discussing alternatives. . Large businesses may not find it profitable to spend that much time with each customer. . Big business has a clear advantage when a large number of customers are willing to buy standard products and prefer low cost and efficient delivery. . Small Business gain an advantage when customers have unique needs, want more individual attention, and are willing to pay a bit more for the product or services to obtain what they really want.

3 types of Finances

. Start up financing- the cost of buildings, equipment, inventory (products or raw materials on hand), supplies, licenses, and the like. . Short term financing- obtained for a period of less than a year and often for a one or two months. . Long term financing- such as land, buildings, and equipment) that will last for many years. . These resources usually require a large amounts of money and will be paid for over many years.

Ownership Diversity

. Women own over 1/4 of all small businesses. Over 16 % of small businesses have African Americans, Asian- American, or Hispanic-American ownership. . Majority of small businesses owners are over 40 years old, but nearly 20% are under 25. . Today starts with small businesses have HS diplomas. . Half of all small businesses are home-based businesses because many businesses are part-time ventures or service businesses, the owners report that on average they needed $5,000 or less to start that type of businesses. . Full time- businesses with buildings, equipment, and employees may require well over $100,000 of initial capital.

Corporation

. owned and financed by the shareholders. . Borrowed funds are obtained through loans from banks and other financial institutions or through funding provided by other people, such as family and friends. . Often companies that sell equipment, materials, or inventory to a business will offer credit if the business does not have financial problems. A new business owner should be careful about accepting credit. . The owners must take into account the cost of the credit and when payments are due.

An idea plus experience

. Having responsibility for decisions and opportunities to manage people is a key part of that experience.

Recognizing Risks

Developing a successful new business isn't easy. Many more new businesses fail than succeed. The time and energy required of new business owners is much higher than most people expect.

Entrepreneur

key factors: a real desire to be your own boss and developing a good initial plan. Having Special skills and abilities and coming up with innovative ideas. Advantages: Good opportunities for entrepreneurship through small business ownership.

Partnership

partners will each be expected to contribute.

Business Plan

-is a written description of the business idea and how it will be carried out, including all major business activities. . Key features of a business plan are a general description of the company, the credentials of the owners, a description of the product or service, an analysis of the market (demand, customers, and competition), a financial plan. . If the business owner needs help from others especially a business plan will usually be required. . Must be develop! Force the owner to think about important activities, the amount of time they will take, and their cost.

Financing the Small Business

. A new business with a good product or service may run out of money before it can become profitable. . Finding adequate financing is a key step in starting and running a new business.

Small Business Ownership

. Business viewed as very large corporations. . Companies employ thousands of people with locations all over the country and the world. . The greatest % of business in the US is small Businesses.

Steps in developing the Business Plan

. In charge of developing a business plan. . Persuade leaders and investors to finance the venture is the most popular use of business plans. . A well- develop plan will lay out an idea and will require an owner to analyze his or her concept and make decisions about key business activities such as production, marketing, staffing, and financing. . . Some owners either hire someone to write the plan or get help from a bank or a local office of the Small Businesses Administration. . First step in developing the business plan is to gather and review information. If possible, the owner should review other business plans and study information on the activities and financial performance of similar business, espically potential competitors. . Next, the owner should develop the "game plan." Alternative plans for production, marketing, staffing, and financing should be studied and identified. The owner can select the best choices from the alternatives. . Finally each section of the business plan should be written. A plan devotes sections to a general description of the business. The sections include the basic legal form of the organization and major products or services. Other sections detail the competition, potential customers, operations, marketing, and finances. Before the plan is completed, the owner should have other business experts review the plan and give their advice about its strengths and weaknesses.

Team Approach

. Many Small Businesses are quite independent. . Don't want to take direction from other people. Not easy to start of without helpers. . Even the smallest businesses need a few full or part time employees. . Choosing the "team" members becomes one of the most important initial business decisions. . The new owner should identify business professionals who focus on working with small business who is specialized business knowledge, Bankers, Lawyers, and Accountants.

Reasons for failure

. Not keeping adequate records . Not having enough start up money . Lack of management experience . Lack of experience with the type of business . Not controlling operating expenses . Poor location for the business . Failure to manage credit offered to customers

Common Small Business Problems

. Small Business fail is higher than larger businesses. . Cause to fail is from the the inability to pay expenses. Force to be close.

Entrepreneurship

. Young people who have creative ideas and turn them into business each year. . Takes unique skills and personal characteristics to develop a new idea for a product or service. . A person must also have both the confidences and capability to turn it into a business. . Own their first business while in their teens. . More business owners are male, but young entrepreneurs are more equally divided between male and female. . Important to understand of business operation and management. Not always from the college degree. . May work in a business or ask for help and advice from an experienced business owner. Read and study on their own as well as in school. . Personal traits: energetic, persistent, self-confident, creative, reliable, strong integrity, problem- solving skills. . Key part of the U.S. economy. . One in ten of all Americans 18-64 years old is involved in some type of entrepreneurship activity. . Over 500,000 new business are created annually. . Risky ( as many small businesses close as begin each year. . 40 % of a new business owners run their own businesses with no help. Other 60% have one or more employees. . Most of the money needed to start a new business comes from the entrepreneur and his or her family and friends. . Over 50% lend financial support for the business of a family member or relative. 29% give money to neighbors and friends. 8% invest in business started by work colleagues.

Venture Capital

. is money provided by large investors to finance new products and new business that have a good chance to be very profitable. . Late 1990's many venture capital companies were formed. Supplied over $100 billion each year to new businesses. . Many of the businesses receiving those funds were e-commerce and high tech start-ups. . When businesses fail the amount of venture capital declined to less than $20 billion in 2003. Over 2,000 companies receive venture capital each year. ( People think that new businesses provide a good investment opportunities. The other sources of financing for new businesses are loans from banks and financial institutions and credit given by businesses that sell products and services to the new business. . New and Small businesses produces a large volume of goods and services for the economy. . Single owner and no staff account for over $600 billion in sales annually. Responsible for nearly half of the US GDP each year. 55% of all innovative products and services developed.

National Federation of Independent Business

. reports that of all new business, about one-third are profitable, one-third don't make a profit but continue to operate, and the remaining third lose money. . Over a ten year period, well over 50% of all new businesses are discontinued. (Reasons: lack of adequate capital, low sales, higher than expected expenses, competitive pressure, an owner unprepared to manage a growing business, operations requiring more time than the owner is willing to commit.)

Right Place and Time

.Most retail businesses need good customer traffic. . If it's to find a location then many potential customers will stay away. . A wholesaler needs easy access to manufacturers where products are obtained for resale to other businesses. . Manufacturers must be located in an area with access to the raw materials used in manufacturing. . Transportation systems must also be easy to reach for distributing finished products. . Timing is another key factor in starting a business. . Most successful businesses start during a period when customers demand for certain products or services is high.

Inventors

.often develop innovations. Might become the basis for a new business. . Sell them to another company for development and sale. EX: Apple personal computer developed by Steven Jobs and Stephen Wozniak and Post-it Notes created by Arthur Fry and Spencer Silver. . Recent Innovations that may become successful products include a miniaturized artificial heart, a virtual computer keyboard, and an optical camouflage system that allows people wearing a special reflective material to seem to disappear. . Innovators- create new services that become the basis for a business. . Not all entrepreneurship opportunities emerge from those types of inventions and innovations. Many come from an improved design, more effective procedures, or greater attention to quality. Entrepreneurs are creative problem-solvers to improve products and services.

Stable Income

Benefits: personal control over your own business. Personal sanctification if your idea develops into a successful, profitable company.

Small Business Employment

Small Businesses employ nearly 50% of all US workers. . On average, small businesses are responsible for creating 60 to 80 % of all new jobs. . Many small businesses services are professional and technical. Many construction companies operate as small businesses. . Smallest is Information, publishing, and broadcasting.

Developing a Business Plan

When successful businesses are compared with those that failed, one factor stands out as the most important difference. Follow a Business if they are successful.

Small Businesses Administration

a Small Business is an independent business with fewer than 500 employees. . 99.7% of the roughly 24 million U.S. business are small business. . A more specific description is: The owner is usually the manager, It operates in one or very few locations, It typically serves a small market, It is not dominant in its field. . Most of those business are run on a part-time basis from the owner's home. 15 million businesses are set up as proprietorship. . No matter how you identify small businesses, they are by far the greatest number of businesses operating today. . Is a government agency that helps small business owners develop business plans and obtain financing and other support for their companies. SBA sponsors the Service Corps of Retired Executives are retired local businesses people who volunteer their services to counsel and mentor new business owners.