MGT 111 - Ch. 5 & 6 Study Guide

Immigration Act of 1990

Created a category of"investor visas" that encourage entrepreneurs to come to the U.S.

Importance of small businesses

1. 65 percent of the nation's new jobs are in small businesses 2. More personal customer service 3. Ability to respond quickly to opportunities

When writing a business plan

1. A good plan takes a long time to prepare 2. A good executive summary catches interest and tempts potential investors to read on 3. Getting the plan into the right hands is almost as important as getting the right information in it

Reasons for the growth of home-based businesses

1. Computer technology has leveled the playing field 2. Corporate downsizing has led many to venture on their own 3. Social attitudes have changed 4. New tax laws have loosened restrictions on deducting expenses for home offices

Downsides of Home-Based businesses

1. Difficult to establish work habits 2. Limited support system 3. Isolation 4. Workspace may be limited 5. Clients may be uncomfortable coming to your home 6. Zoning restrictions 6. Success is based 100 percent on your efforts

Why is it hard for small businesses to go global?

1. Difficulty in finding financing 2. Not knowing how to get started 3. Not understanding cultural differences 4. Too much bureaucratic paperwork.

Avantages of sole a proprietorship

1. Ease of starting and ending the business 2. Being your own boss 3. Pride of ownership 4. Leaving a legacy 5. Retention of company profits 6. No special taxes

Managing a small business (Employees)

1. Hiring, training, and motivating employees is critical 2. Employees of small companies are often more satisfied with their jobs because they feel challenged and respected 3. Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions

What are the 3 types of mergers

1. Horizontal 2. Vertical 3. Conglomerate

Disadvantages of corporations

1. Initial cost 2. Extensive paperwork 3. Double taxation 4. Two tax returns 5. Size 6. Difficulty of termination 7. Possible conflict with stockholders and board of directors

Disadvantages of Home-Based Franchises

1. Isolation 2. Long hours

An idea is a good opportunity if

1. It fills customers' needs 2. You have the skills and resources to start a business 3. You can sell the product or service at a reasonable price and still profit 4. You can get your product or service to customers before the window of opportunity closes 5. You can keep the business going

Disadvantages of Franchises

1. Large start-up costs 2. Shared profit 3. Management regulation 4. Coattail effects 5. Restrictions on selling 6. Fraudulent franchisors

Advantages of corporations

1. Limited liability 2. Ability to raise more money for investment 3. Size 4. Perpetual life 5. Ease of ownership change 6. Ease if attracting talented employees 7. Separation of ownership from management

What are the 2 major advantages of corporations?

1. Limited liability 2. Possible tax benefits

Advantages of Franchises

1. Management and marketing assistance 2. Personal ownership 3. Nationally recognized name 4. Financial advice and assistance 5. Lower failure rate

Reasons for small business failure

1. Managerial incompetence 2. Inadequate financial planning 3. Choosing the wrong type of business

Advantages of partnerships

1. More financial resources 2. Shared management and pooled/complementary skills and knowledge 3. Longer survival 4. No special taxes

Managing a Small Business (keeping records)

1. Need accurate accounting and record keeping 2. Many business failures are caused by poor accounting practices that lead to costly mistakes

Advantages of global trade for small businesses

1. Overseas buyers enjoy dealing with individuals 2. They can usually begin shipping much faster 3. They provide a wide variety of suppliers 4. They can give more personal service and attention

Advantages of Home-Based Franchises

1. Relief from commuting stress 2. Extra family time 3. Low overhead expenses

What does it take to be an entrepreneur?

1. Self-directed 2. Self-nurturing 3. Action-oriented 4. Highly energetic 5. Tolerant of uncertainty

Disadvantages of partnerships

1. Unlimited liability 2. Division of profits 3. Disagreements among partners 4. Difficulty of termination

Disadvantages of a sole proprietorship

1. Unlimited liability - The responsibility of business owners for all debts of the business 2. Limited financial recourses 3. Management difficulties 4. Overwhelming time commitment 5. Few fringe benefits 6. Limited growth 7. Limited life span

Small Business Administration (SBA)

A U.S.government agency that advises and assists small businesses by providing management training and financial advice and loans INTEGRITY & SOUNDNESS

Partnership

A business in which two or more persons combine their assets and skills

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

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

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 owner(s)

Entrepreneurial Teams

A group of experienced people from different areas ofbusiness who join to form a managerial team with theskills to develop, make, and market a new product

Crowdfunding

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

General partnerSHIP

A partnership in which all owners share in operating the business and in assuming liability for the business's debts

Limited partnerSHIP

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

Entrepreneurship

Accepting the risk of starting and running a business

Franchise agreement

An arrangement where by 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

Managing a Small Business (looking for help)

An experienced lawyer who knows and understands small businesses can help with leases, contracts, partnership agreements, and protection against liabilities Independent marketing research study Commercial loan officers and insurance agents are important resources

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

What do entrepreneurial teams do?

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

Intrapreneurs

Creative people who work as entrepreneurs within corporations Intrapreneurs use a company's existing resources to launch new products for the company

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 balanced lifestyle (more than half of micropreneurs are home based)

Most common sources of funding for small businesses

Family and business associates

Business plans

Forces potential owners to be specific about what they will offer Are mandatory for talking with bankers or investors

Venture capitalists

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

How are Co-Ops formed

Members democratically control the business by electing aboard of directors that hires professional management Other cooperatives are formed to give members more economic power as a group than they have as individuals, such as a farm cooperative

Types of Expansion

Merger and acquisition

Acquisition

One company's purchase of the property and obligations of another company

Market

People with unsatisfied wants and needs who have both resources and willingness to buy

Enterprise zones

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

Conglomerate merger

The joining of firms in completely unrelated industries

Vertical merger

The joining of two companies in different stages of related business

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

Merger

The result of two forms forming one company

Sole Proprietorship

a business owned and managed by a single individual

Corporation

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

2 types of partnerships

general and limited

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

Angel Investors

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

3 major forms of business ownership

sole proprietorships, partnerships, corporations