CH 7

the money that you'll need to get your business off the ground

Financing

most entrepreneurial ventures begin as small business but not all small business owners are _______

not all small business owners are ENTRENUERS

Why do small business hire more frequently and fire more frequently than do big companies

because the survival and expansion rates for small firms is poor, and so, again at any given point in time, many small businesses close or contract and workers lose their jobs.

you can become a small business owner in one of three ways—

1)By starting a Business 2)Buying an existing one 3)obtaining a franchise

When starting a business you need to do what two things

1)Create a business plan 2)start financing

Why can franchises be expensive?

1)In addition to your initial investment, you'll have to pay two other fees on a monthly basis—a royalty fee (typically from 3 to 12 percent of sales) for continued support from the franchiser and the right to keep using the company's trade name, plus an advertising fee to cover your share of national and regional advertising. 2)You'll also be expected to buy your products from the franchiser. 3)The cost of obtaining and running a franchise can be high, and you have to play by the franchisor's rules, even when you disagree with them 4)The franchiser maintains a great deal of control over its franchises ex:if you own a fast-food franchise, the franchise agreement will likely dictate the food and beverages you can sell; the methods used to store, prepare, and serve the food; and the prices you'll charge.

Why are small businesses important?

1)create jobs 2)spark innovation 3) Provide opportunities for many people, including women and minorities, to achieve financial success and independence 4)contribute to growth and vitality in specific areas of economic and socio economic development 5)compliment the economic activity of large organizations by providing them with components, services, and distribution of their products.

Dividing businesses into two broad types of industries, or sectors:

1)goods-producing sector 2)service-producing sector

In addition to the right to use a company's brand name and sell its products, the franchisee gets help in .......?

1)picking a location, 2)starting and operating the business, 3)benefits from advertising done by the franchiser

Why are small business so innovative?

1)they tend to offer environments that appeal to individuals with the talent to invent new products or improve the way things are done. 2)Fast decision making is encouraged 3)their research programs tend to be focused 4)their compensation structures typically reward top performers.

When obtaining a franchise how does it work?

A franchiser (the company that sells the franchise) grants the franchisee (the buyer—you) the right to use a brand name and to sell its goods or services. Essentially, the franchisee buys into a ready-to-go business model that has proven successful elsewhere

Why do small businesses fail?

A lack of formal planning insufficient market analysis undercapitalization lack

you must describe your future business in the form of a _________ _______. It is a document that identifies the goals of your proposed business and explains how these goals will be achieved.

Business plan

it's hard to determine how much you should pay for a business. Location might not be as good as it once was The current owner could have disappointed customers Might inherit employees you would not have hired yourself

Cons of Buying an existing business

What is one of the riskiest venture and hard to get start up funding for?

Opening a restaurant or a bar is one of the riskiest ventures

You'll already have a proven product, current customers, active suppliers, a known location, and trained employees. You'll also find it much easier to predict the business's future success.

Pros of Buying an existing business

What exactly is my business idea? Is it feasible? What industry do I want to enter? What will be my competitive advantage? Do I want to start a new business, buy an existing one, or buy a franchise? What form of business organization do I want?

Questions to ask if you want to start a business

offers an array of programs to help current and prospective small business owners. The ______won't actually loan you the money, but it will increase the likelihood that you will get funding from a local bank by guaranteeing the loan

Small Business Adminstration (SBA)

1)The most common—and the riskiest—option 2)lets you start with a clean slate and allows you to build the business the way you want 3)You select the goods or services that you're going to offer secure your location 4)hire your employees 5)then it's up to you to develop your customer base and build your reputation.

Starting a business from scratch

they sell products to businesses that buy them for resale or for company use Ex: bakery when it sells desserts to a restaurant Doctors and dentists, insurance agents, accountants, and lawyers are part of the service industry

Wholesalers

1)Bad business idea. Like any idea, a business idea can be flawed, either in the conception or in the execution. 2)Cash problems. Too many new businesses are underfunded. The owner borrows enough money to set up the business but doesn't have enough extra cash to operate during the start-up phase, when very little money is coming in but a lot is going out. 3)Managerial inexperience or incompetence. Many new business owners have no experience in running a business; many have limited management skills. Knowing how to make or market a product doesn't necessarily mean knowing how to manage people or retain talented employees. 4)Lack of customer focus. A major advantage of a small business is the ability to provide special attention to customers. But some small businesses fail to seize this advantage. Perhaps the owner doesn't anticipate customers' needs or keep up with changing markets or the customer-focused practices of competitors. 5)Inability to handle growth. Growing sales is usually a good thing, but sometimes it can be a major problem. When a company grows, the owner's role changes. He or she needs to delegate work to others and build a business structure that can handle the increase in volume. Some owners don't make the transition and find themselves overwhelmed. In such cases, expansion actually damages the company. 6)Failure to adapt. The external environment for a company can change dramatically. Companies that fail to keep up will not be around for long.

Why businesses fail

1)Independence- you are your own boss 2)lifestyle-you decide when and where you want to work 3)financial rewards-you can make more money than if you were employed 4)learning opportunities-you are involved in all aspects of your business 5)creative freedom and personal satisfaction- you work in a field you enjoy

advantages of small business ownership

Affluent investors who provide capital to start-ups in exchange for an ownership position in the company. Many are successful entrepreneurs themselves and invest not only to make money bt to also help other aspiring business owners succeed

angel investors

What are the largest areas of goods-producing sector

construction and manufacturing

A means of raising capital Might use a crowdfunding platform like kickstarter to attract investors. The entrepreneur might offer tokens of appreciation in exchange for funds, or perhaps might offer an ownership stake for a substantial enough investment

crowd funding

1)Financial risk-May need to commit most of your savings or go into debt- no guaranteed income 2)Stress- you are the business and responsible for everything 3)Time commitment-extremely time consuming 4)undesirable duties- have to do unpleasant tedious thing (firing people)

disadvantages of business ownership

financial risk- no guaranteed income- might go into debt stress- lots of things to worry about- competition, employees, bills, equipment breakdowns time commitment- running busines is time consuming undesirable duties- doing work you dont enjoy, firing people

disadvantages of small business ownership

What does a weak economy discourages individuals to do

discourages start-ups and expansions, which decreases the workforce through layoffs.

3 Finger Rule for Starting a Business

do you have the technical skills in that business

Innovators who start companies to create new or improved products strive to meet a need thats not being met goal is to grow the business eventually exapand into other markets

entrepreneurs

the buyer-you

franchisee

the company that sells the franchise

franchiser

Types of funding sources for entreprenuers

friends and family crowd funding angel investors(10,000-80000) venture capital( above 100000

includes all businesses that produce tangible goods. Generally speaking, companies in this sector are involved in manufacturing, construction, and agriculture.

goods-producing sector

What is the key to coming up with a business idea

identifying something that customers want—or, perhaps more importantly, filling an unmet need

a group of companies that compete with one another to sell similar products

industry

people who start or buy small business do not intend to be _____ or to _____ _______but to operate a lifestyle business

innovative or to expand significantly

If your idea is innovative enough, it may be considered _________ __________ It is a right that can be protected under the law.

intellectual property

How does SBA's loan guarantee program work?

ou apply to a bank for financing. A loan officer decides if the bank will loan you the money without an SBA guarantee. If the answer is no (because of some weakness in your application), the bank then decides if it will loan you the money if the SBA guarantees the loan. If the bank decides to do this, you get the money and make payments on the loan. If you default on the loan, the government reimburses the bank for its loss, up to the amount of the SBA guarantee.

people either start or buy small business for the sole purpose of ?

providing income for themselves and their families

they buy goods from other firms and sell them to consumers, in stores, by phone, through direct mailings, or over the Internet.

retailers

Many small businesses in this service producing sector are ________ the rest are_______

retailers;wholesalers

includes all businesses that provide services but don't make tangible goods. They may be involved in retail and wholesale trade, transportation, finance, entertainment, recreation, accommodations, food service, and any number of other ventures.

service-producing sector

one that is independently owned and operated, exerts little influence in its industry, and (with a few exceptions) has fewer than 500 employees

small business

What does a strong economy encourage individuals to do

to start small businesses and expand existing small companies, which adds to the workforce.

Also invest in start up companies but usually at a later stage an in larger dollar amounts that would be typical of angel investors. Also take ownership position in the company Tend to have high expectations of making a return on money than angel investor do

venture capital(shark tank)