MGT111 Exam 3: Chapter 5 and 6
Reasons for small buissness failure
(Rev-Cost=P/L) o Money (not enough) o Too little knowledge o Too low pricing o Too little time to build market o No market o Too much Credit (maxing out personal credit card) o Bad written records (paper work is very important) o Taxes/costs/NET
Angel investors
(money for return no want to run business)
· Venture Capitalist
(money with percentage ownership) o Shark Tank
Business plan
***Detailed · Nature of the business · Target market · Resources · Qualifications of owner (positive and negative)
Manage people
Skillset that can lead to failure if done wrong *** Unique skillset · Want a clear story/task that is easily understood
Small business ·
Small when compared to others GOVERNMENT LOVE (Generates societal wealth (invisible hand)
SCORE
o 10,000 formal executives that give advice
Facts about failing businesses
o 50% of business fail within 5 years o 90% of restaurant fail within 1 year
· Diversity Fran and Federal Minority Business Development Agency
o Build awareness of franchising opportunities within minority communities and provide training and support.
· Reasons for success of small business
o More customer interaction Upselling o Unique/custom product o Small market (no competition) o Franchise § (Succeed at a higher rate than non franchise small businesses)
Limited partnership
o NO management role o Just provide money § Only liable for the investment you made at first · Topmost liability
· General partnership
o Shared management and liability
· Diversity in Franchising
o Women own about half of U.S. companies, yet ownership of franchises is about 35 percent. o More women are becoming franchisors, such as those who started Auntie Anne's, Decorating Den, and Build-a-Bear o Minorities own less than 19 percent of businesses, yet over 30 percent of franchises are minority-owned.
SHAREHOLDERS
owners of corporations elect board of directors
2019
12% of businesses were online
Franchising
An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others (franchisees) in a given territory. · Can be formed as a sole proprietorship, a partnership, or a corporation.
Small business administration (US Government agency)
Designed to solely help small businesses being successful Offers financial advice and loans
Kim K
Did not tell people she was being paid by a company and now is being sued
• Franchising in Global Markets
Even smaller franchises are going global. • Canada is the most popular target for U.S.-based franchises, but so is China, South Africa, the Philippines, and the Middle East. • Adapting products and brand names to different countries creates challenges. • Foreign franchises also come to the U.S
Adam Smith
Invisible hand
Limited liability company (LLC)
Professions Liability is lower · Personal assets are NOT at risk if you do these things o Less things then a corporation though
Vertical merger
Related businesses (soda company merges with glass bottle company)
· Government love small businesses
Systems to encourage
Financing (loan)
Talk to and GET IN WRITING · Friends · Family · Banks (interest and payback) · Angel investors (money for return no want to run business) · Venture Capitalist (money with percentage ownership) SCORE Small business administration (US Government agency)
S Corporation
Taxed once Less than 100 shareholders and less then 25 % of money being passive
Conglomerate merger
The joining of firms in completely unrelated industries.
Horizontal merger
The same product (Coke buys Pepsi)
Small business facts
USA: Over 30 million small businesses · 43% of the GDP though (big role) · Employee 50% of workers in US · 65% of jobs created § 400,00 a year · 50% fail in 5 years · 90% fail in 1 year
Liability with sole propitiator
Unlimited liability
· Junior Bridgeman
Worked at a Wendy's then bought them all $600 million
state chartered:
checklist of things to do then you can be a corporation
They offer the same advantages as in the U.S.: (2)
convenience and a predictable level of service and quality.
· Board of directors
hire PRESIDENT (employee of board)
Net:
profit or loss defines success NOT revenue
franchise
sells the rights to use the business name and sell a product or service
franchisor
someone with a good idea for a business
Entrepreneurs
take risks
Liability
you are reliable for legal damages/ if something goes wrong
important things for corporations
§ Individual you own 100% of the shares so 100% control of electing board so you can elect yourself as president · Assets are protected if people know you are a corporation · MUST do business as that Corporation o Contract with Jim Evans INC.
Entre. Team
· Bringing in other people to help you fill in information gaps
Sole proprietor Pros
· Easy (no paperwork etc.) · Be your own boss · Pride · Retention of ALL profits (rev-costs) · No specific unique taxes o All revenue taxed at specific wages (like income)
types of Partnerships (2)
· General partnership · Limited partnership
Cons of corporations
· High initial cost · Extensive paperwork that is ongoing · Double taxation o Corporate taxes o Individual/revenue/wages income tax · Termination is hard and expensive · Conflict between shareholders and board decisions
Enterprise zone
· If you start a business here your taxes will be LOWER
Pros of partnerships
· Increase opportunity to get more money · Shared management and skills · Longer life · No specific taxes
Intrapreneurs
· Inventing a new product but working for a company/working for someone else
Disadvantages of Franchises
· Large start-up costs. · Shared profit. · Management regulation. · Coattail effects. · Restrictions on selling. Fraudulent franchisors.
Corporation
· Legal partnership/entity Follow state (and federal) laws (state charter) o A way to protect your personal assets through liability and less tax burden on revenue · 20% of all businesses · 81% of ALL the US revenue though
Pros of corporations
· Limited liability o Personal assets protected · Sell shares · Grow large · Preputial · Easy to sell · Separates owners from management
Advantages of Franchises
· Management and marketing assistance. · Personal ownership. · Nationally recognized name. · Financial advice and assistance. · Lower failure rate.
Home based businesses DOWNSIDES
· No storefront · Managing time · Separating work and family · Laws
Acquisition
· One company buys another company and both survive (Coke buys bottle company (100% of the shares) and leaves the bottle company structure the same)
Sole propriety
· One person going into business · Personal/individual and business assets at risk · 72% of all businesses · 6% of ALL the US revenue though
Entrepreneurs Pros
· Opportunity · Profit · Independence · Challenging
Entrepreneur SKILLS NEEDED
· Self-directed · Self-nurturing · Action oriented · Highly energetic · Tolerant of uncertainty
Micropreneurs
· Small business people o Do NOT care about business growing o More interested in a balanced lifestyle
Incubator
· Small office building that are open for people to come and work o Government employees that are experts in business
Home based businesses UPSIDES
· Technology · Downsizing (Companies wiping out jobs) Rev-cost=P/L · Social attitudes Real job now · Taxes
Merger
· Two companies become one · 3 Kinds (vertical and horizontal and congolmate)
Partnership
· Two or more people going into business · 8% of all businesses are sole proprieties · 13% of ALL the US revenue though
Sole proprietor Cons
· Unlimited liability o 100% responsible and all assets at risk · Limited money · Decreased management expertise o Limited to what you know as an individual · Time intensive · No fringe benefits o Health insurance, paid vacation etc. · Limited life span
Cons of partnerships
· Unlimited liability · Shared profits · Disagreements · Hard to end
How businesses are structured ? (2)
· liability and risk drives your decision on the type · Taxation on revenue
• 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. • Serve one billion members worldwide. • Members democratically control the business by electing a board of directors that hires professional management. Other are formed to give members more economic power as a group than they have as individuals, such as a farm
Home-Based Franchises Disadvantages:
• Isolation. • Long hours
· Home-Based Franchises Advantages:
• Relief from commuting stress. • Extra family time. • Low overhead expenses