Exam 2 - Prep
Entrepreneurship
•Entrepreneurship -- Accepting the risk of starting and running a business.
Why do people take the risk of Entrepreneurship?
•Opportunity •Profit •Independence •Challenge
BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE...
•Owner closing a business to start another is reported as a "failure." •Changing forms of ownership is reported as a "failure." •Retirement is reported as a "failure."
LEGAL HELP
•Owners need outside consulting advice early in the process. •Small and medium-sized firms cannot afford to hire experts as employees. •A competent lawyer can help with: •Leases •Contracts •Partnership agreements •Protection against liabilities
LO 6-2
GETTING STARTED IN SMALL BUSINESS
GOVERNMENT and ENTREPRENEURSHIP
Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.
Other Forms of Partnerships
Master Limited Partnership (MLP) Limited Liability Partnership
GOVERNMENT and ENTREPRENEURSHIP
•Immigration Act passed in 1990 created a category of "investor visas" that encourage entrepreneurs to come to the U.S.
CAUSES of SMALL BUSINESS FAILURES
-Plunging in without first testing the waters on a small scale. -Underpricing or overpricing goods or services. -Underestimating how much time it will take to build a market. -Starting with too little capital -Starting with too much capital and being careless in its use. -Going to business with little or no experience and without first learning something about the industry or market. -Borrowing money without planning just how and when to pay it back.
Types of Franchise
1. Minority-Owned 2. E-commerce 3. Home-based 4. Global Franchising
Corporations Types of Corporations
1. S Corporation 2. Limited Liability Corporations (LLC)
Three Major Forms of Business Ownerships:
1. Sole Proprietorship 2. Partnership 3. Corporation
Disadvantages of Franchising
1.Large start-up costs 2.Shared profit 3.Management regulation 4.Coattail effects 5.Restrictions on selling 6.Fraudulent franchisors
Sole Proprietorships -Advantages-
1.Easy to start and end the business 2.Being your own boss 3.Pride of Being a business owner 4.Leaving something for your family to continue. 5.Can keep the profits to yourself 6.No special taxes.
Corporations -Limited Liability Corporations- Advantages
1.Limited liability 2.Choice of taxation 3.Flexible ownership rules 4.Flexible distribution of profits and losses 5.Operating flexibility
Advantages of Franchising
1.Management and marketing assistance 2.Personal ownership 3.Nationally recognized name 4.Financial advice and assistance 5.Lower failure rate
Advantages of Partnerships
1.More Financial resources Two or more partners can pool money to pay for the overhead and expand the business. 2. Shared management and pooled/complementary skills and knowledge. Partners invest their time and that helps to not work long hours. Also each partner bring their own set of knowledge which helps run the business smoothly. 3. Longer survival Being held accountable by someone else helps the business survive longer. 4. No special taxes Profits are taxed as personal income
Corporations -Limited Liability Corporations- Disadvantages
1.No stock, therefore ownership is nontransferable 2.Limited life span 3.Fewer incentives 4.Taxes 5.Paperwork
Five Mistakes Business Owners Make
1.They're too afraid to take the leap! 2.They hire the wrong people. 3.They don't want to give up control. 4.They become complacent. 5.They fail to see new opportunities.
Sole Proprietorships - Disadvantages-
1.Unlimited Liability - •Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. The business and the owner are considered as one, any debts or damages incurred by the business become the owner's problem. 2.Limited financial resources Funds available to the business are limited to what the one owner can gather. 3.Management difficulties Business owners have a hard time attracting qualified employees do to most cannot compete with major corporations for salaries and benefits. 4.Overwhelming time commitment "It's not a job, it's not a career, it's a way of life" Means most owners have to work harder and longer hours in their business, than a regular job. 5.Few fringe benefits Lose your benefits and owners have to pay for them from their own pocket. 6.Limited growth Expansion is slow because of funding and lack of creativity. 7.Limited life span If an owner dies or becomes incapacitated, or retires the business no longer exists.
Disadvantages of Partnerships
1.Unlimited liability Each partner is liable for the debts of the business no matter who caused them. 2.Division of Profits Sharing profits can be difficult and cause conflicts between partners. 3.Disagreement between partners Of money, authority, purchasing, selling, and etc... Can be many of the issues that can arise in a partnership. 4.Difficulty Terminating the partnership/business Division of profits, assets, and many other things are hard to decide.
Sole Proprietorship - (most common)
A business owned, and usually managed, by one person.
Franchisor
A company that develops a product concept and sells others the rights to make and sell the products.
Other Forms of Partnerships -Master Limited Partnerships (MLP)
A partnership that looks like a corporation, but is taxed like a partnership and thus avoids the corporate income tax.
Limited Partnership
A partnership with one or more general partners and one or more limited partners.
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders). A legal entity with authority to act and have liability apart from its owners.
Corporations -S Corporations-
A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships. •S corporations have shareholders, directors and employees, plus the benefit of limited liability. •Profits are taxed only as the personal income of the shareholder.
Home-Based Franchises
Advantages: •Relief from commuting stress •Extra family time •Low overhead expenses Main Disadvantages: •Isolation •Long hours
General Partnership
All owners share in operating the business and in assuming liability for the business's debts.
UNIFORM PARTNERSHIP ACT (UPA):
All states except Louisiana have adopted the UNIFORM PARTNERSHIP ACT (UPA): The UPA Defines the three key elements of any general partnerships as. 1.Common Ownership 2.Shared Profits and losses 3.The right to participate in managing the operations of the business.
Types of Partners -General Partners-
An owner (partner) who has unlimited liability and is active in managing the firm.
Types of Partners -Limited Partner-
An owner who invest money in the business, but enjoys limited liability.
Chapter Five
Basic Forms of Business Ownerships
Job Titles
CEO - Chief Operating Officer COO - Chief Operating Officer CFO - Chief Financial Officer CIO - Chief Information Officer CKO - Chief Knowledge Officer
CHAPTER SIX
Entrepreneurship and Starting a Small Business
Incubators -- Self-Employment Assistance (SEA) Program
Few states offer assistance to qualified candidates under the Self-Employment Assistance (SEA) Program
When is the right time to start Entrepreneurship?
Four reasons to start your business right away: 1.You don't have a mortgage or kids to take care of. 2.You can survive on little funds and work long hours. 3.No disruption to your career path. It hasn't started yet! 4.Use your alma mater for resources.
Types of Partners
General Partners Limited Partner
Partnerships -There are several-
General Partnership - Limited Partnership -
LO 5-5
In addition to the three basic forms of business ownership there are two special forms: 1. Franchises 2. Cooperatives
LO 6-3
LEARNING ABOUT SMALL-BUSINESS OPERATIONS
Other Forms of Partnerships -Limited Liability Partnership (LLP)-
Limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.
International Franchise Association
More than 770,000 franchised businesses operate in the U.S., employing approximately 8.5 million people.
LO 7-4
ORGANIZING:CREATING A UNIFIED SYSTEM
Corporations -Limited Liability Corporations-
Similar to an S corporation, but without the eligibility requirements.
Top Management
The highest level of management, consisting of the president and other key company executives who develop strategic plans
Franchise
The right to use a specific business's name and sell its products or services in a given territory. 1. Franchise Agreement 2. Franchisor 3. Franchisees
Partnership
Two or more people legally agree to become co-owners of a business. A partnership is a legal form of business with two or more owners.
Limited Liability
means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk.
OTHER FORMS OF HELP
•A commercial loan officer can help: •Design an acceptable business plan. •Give financial advice. •Lend money. •An insurance agent can help you: •Know the risks associated with the business. •How to cover risks with insurance. •How to prevent risks with safety devices. •Service Corps of Retired Executives •More than 13,000 volunteers from industry, trade associations, and education who counsel small business at no cost.
BENEFITS of 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
AFFILIATE MARKETING
•Affiliate Marketing -- An online marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.
Corporations Who can Incorporate?
•Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate. •Normally stock is not issued to outsiders when individuals incorporate, so the advantages and disadvantages are not exactly the same as for large corporations. •Major advantages are limited liability and possible tax benefits.
BUSINESS PLANS
•Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners' qualifications. •A business plan forces potential owners to be specific about what they will offer. •A business plan is mandatory for talking with bankers or investors.
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS
•CDFIs are playing a big role in the economic recovery. •First formed in the early 1980s; by 2009, over $1 billion flowed into CDFIs from investment companies. •Only 1% of loans were not paid back in the last 30 years!
Global Franchising
•Canada is the most popular target for U.S.-based franchises. •China, South Africa, the Philippines and the Middle East are becoming popular despite high cost. •International franchising goes both ways - some foreign franchises have come to the U.S.
HOME-BASED BUSINESS GROWTH
•Computer technology has leveled the playing field. •Corporate downsizing has led many to venture on their own. •Social attitudes have changed. •New tax laws have loosened restrictions on deducting expenses for home offices.
ACCOUNTING ASSISTANCE
•Computers simplify the process by helping with inventory control, customer records and payroll. •A good accountant can help in: •Deciding whether to buy or lease equipment. •Deciding whether to own or rent a building. •Tax planning. •Financial forecasting. •Choosing sources of financing. •Writing requests for funds.
COOPERATIVES
•Cooperatives -- Businesses owned and controlled by the people who use them- producers, consumers, or workers with similar needs who pool their resources for mutual gain. •Worldwide, co-ops serve one billion members! •Members democratically control the business by electing a board of directors that hires professional management.
Entrepreneurial Teams
•Entrepreneurial team -- 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. •An entrepreneurial team (Steve Jobs, Steve Wozniak and Mike Markkula) was key to Apple's success.
BOOSTING YOUR BUSINESS'S ONLINE PRESENCE
•Establish an identity. •Be easy to find. •Steal good ideas and make them your own. •Look out for opportunities. •Remember other forms of marketing. •Be friendly!
Franchise Agreement
•Franchise Agreement -- An arrangement 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 others (franchisees) in a given territory.
HOME-BASED BUSINESS GROWTH Disadvantages
•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. •Difficult to establish work habits •Limited support system •Isolation •Work space may be limited •Clients may be uncomfortable coming to your home •Zoning restrictions •Success is based 100% on your efforts
MANAGING EMPLOYEES
•Hiring, training and motivating employees is critical. •Employees of small companies are often more satisfied with their jobs - they feel challenged and respected. •Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.
GOVERNMENT and ENTREPRENEURSHIP
•Incubators -- Offer new businesses low-cost offices with basic services.
Disadvantages of Corporations
•Initial cost •Extensive paperwork •Double taxation •Two tax returns •Size •Difficulty of termination •Possible conflict with stockholders and board of directors
INTRAPRENEURS
•Intrapreneur -- A creative person who works as an entrepreneur within a corporation. •Intrapreneurs use a company's existing resources to launch new products for the company.
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 still profit. •You can get your product or service to customers before the window of opportunity closes. •You can keep the business going.
LEARNING ABOUT SMALL BUSINESS
•Learn from Others - Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs. •Get Some Experience - Gain three years experience in the field; then start a part-time small business. •Take Over a Successful Firm - Serve as an apprentice and eventually take over once the owner steps down.
Leveraged Buyouts
•Leveraged Buyout (LBO) -- An attempt by employees, management or a group of investors to buy out the stockholders in a company. •LBOs have ranged in size from $50 million to $34 billion and have involved everything from small businesses to giant corporations. •In 2012, foreign investors poured $166 billion into U.S. companies.
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
MARKET
•Market -- Consumers with unsatisfied wants and needs 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 adapt to market needs.
MARKETING RESEARCH
•Marketing decisions need to be made long before introducing a product or opening a store. •A marketing research study can help you: •Determine where to locate. •Whom to select as your target market. •What is an effective strategy for reaching the market.
Corporate Expansion: -Mergers and Acquisitions-
•Merger -- The result of two firms joining to form one company. * Acquisition -- One company's purchase of the property and obligations of another company.
MICROPRENEURS
•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 a balanced lifestyle. •About half of U.S. Micropreneurs are home-based business owners - writers, consultants, video producers, architects, bookkeepers, etc. •Nearly 60% of home-based Micropreneurs are men.
ADVANTAGES of SMALL OVER BIG BUSINESS
•More personal customer service. •The ability to respond quickly to opportunities.
E-Commerce in Franchising
•Most brick-and-mortar franchises have expanded online. •Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt. •Sometimes "reverse royalties" are sent to franchisees who believe their sales were hurt by the franchisor's site. •Other franchises are solely based online.
Web-Based Businesses
•Online sales reached $262 billion in 2013, about 8% of all retail sales. •All retail sales were up 2.5% in 2013. However, online retail sales grew 13%.
SOURCES of CAPITAL
•Personal savings •Relatives •Former employers •Banks & finance companies •Government agencies •Angel investors •Venture capitalists
MAJOR BUSINESS FUNCTIONS
•Planning •Financing •Knowing customers •Managing employees •Keeping records
What Does it Take to be an Entrepreneur?
•Self-directed •Self-nurturing •Action-oriented •Highly energetic •Tolerant of uncertainty
SMALL BUSINESSES
•Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size. •Businesses are "small" in relation to other businesses in their industries. 60-80% of the nation's new jobs are in small businesses. Bigger is not always better.
The SMALL BUSINESS ADMINISTRATION
•Small Business Administration (SBA) -- A U.S. government agency that advises and assists small businesses by providing management training and financial advice. •SBA started a microloan program in 1991 that provides very small loans to small business owners. •Program judges worthiness based on the borrowers' integrity and soundness of their business ideas.
SMALL BUSINESS PROSPECTS ABROAD
•Small- and medium-sized businesses accounted for 99% of recent export growth. •Advantages of global trade for small businesses: •Overseas buyers enjoy dealing with individuals. •Small companies can usually begin shipping much faster. •They provide a wide variety of suppliers. •They can give more personal service and attention.
SMALL BUSINESS STATISTICS
•There are 28 million small businesses in the U.S. •Of all nonfarm businesses in the U.S., almost 97% are considered small. •Small businesses account for over 50% of the GDP. •Small businesses have generated 65% of new jobs since 1995. •About 80% of U.S. workers' first jobs were in small business.
Venture capitalists
•Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.
Corporate Expansion: - Types of Mergers -
•Vertical Merger -- The joining of two firms in different stages of related businesses. •Horizontal Merger -- The joining of two firms in the same. •Conglomerate Merger -- The joining of firms in completely unrelated industries.