Chapter 7

Small Business Administration (SBA)

An agency of the federal government designed to maintain and strengthen the nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses.

SCORE (Service Corps of Retired Executives)

An organization—affiliated with the Small Business Administration—that provides free, comprehensive business counseling for small business owners from qualified volunteers.

venture capital firms

Companies that invest in start-up businesses with high growth potential in exchange for a share of ownership.

Opportunities of owning a small business

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Threats of a small business:

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business plan

A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives.

Too little money

Lack of start-up money is a major issue for most new firms, since ongoing profits don't usually begin for months, or even years.

Explain the key reasons to launch a small business.

Launching a business is tough, but the advantages of business ownership can far outweigh the risk and hard work. Most people who take the plunge are seeking some combination of greater financial success, independence, flexibility, and challenge. But some are seeking survival and simply have no other options.

Small Business Development Centers (SBDCs)

Local offices—affiliated with the Small Business Administration—that provide comprehensive management assistance to current and prospective small business owners.

Personal customer service

With a smaller customer base, small firms can develop much more personal relationships with individual customers

Lack of knowledge and experience

Entrepreneurs often have expertise in a particular area but lack the background to run a successful business.

Discuss funding options for small business.

For many entrepreneurs, finding the money to fund their business is the top challenge of their start-up year. The vast majority of new firms are funded by the personal resources of the founder, including personal accounts (e.g., credit cards), family, and friends. Other key funding sources include bank loans, angel investors, and venture capital firms

Discuss ways to become a new business owner and tools to facilitate success.

Many people who are interested in owning their own business prefer to start from scratch and build their company from the ground up. But buying an established business, or even a franchise, can be excellent choices as well. Each choice involves a range of pros and cons, but broadly speaking, it's less risky to buy an established business or franchise, but more satisfying (at least for some people) to start a new venture from scratch. Whichever path you choose—whether you're an ambitious entrepreneur or simply a small business owner—several strategies can help you succeed over the long term: gain experience in your field, learn from others, educate yourself, access SBA resources, and develop a business plan.

Market Niche

Many small firms are uniquely positioned to exploit small, but profitable, market niches.

Lower overhead costs

Many small firms can hold down overhead costs by hiring fewer managers and fewer specialized employees.

Describe the typical entrepreneurial mindset and characteristics.

Not all small business owners are entrepreneurs. The difference is attitude: from day one, true entrepreneurs aim to dominate their industry. The entrepreneurial personality typically includes some combination of the following characteristics: vision, self-reliance, energy, confidence, tolerance of uncertainty, and tolerance of failure. While these qualities are very helpful, they aren't essential: it's clearly possible to succeed with a number of different personality types.

Explain the size, scope, and economic contributions of small business.

Small businesses play a vital role in the American economy, generating about half of the U.S. gross domestic product and accounting for more than two-thirds of all new jobs over the past two decades.In addition to fueling employment growth, small businesses contribute innovations to the economy at a much higher rate than their big business counterparts. They also form the backbone of many inner-city economies, finding opportunities—and offering products and services—in places where most large firms opt not to operate. The entrepreneurship rate around the world varies dramatically from country to country. The differences among countries seem to depend largely on the national per capita income, the opportunity costs for entrepreneurs, and the national culture and political environment.

Bigger regulatory burden

Small firms spend 45% more per employee than big firms, simply complying with federal regulations.

Higher health insurance costs

Small-scale health plans are much more expensive, making it harder to offer employees competitive coverage.

High risk of failure

Starting a new business involves a lot of risk, but the odds improve significantly after the five-year mark.

Technology

The Web has played a powerful role in opening new opportunities for small business in both local and global markets.