Chap. 6 Business Dynamics

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

writing a business plan

-A good executive summary catches interest and tempts potential investors to read on. -Getting the plan into the right hands is almost as important as getting the right information in it.

SBIC (small business investment company)

-A program through which private investment companies licensed by the SBA lend money to small businesses. -A SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has. -SBICs are able to identify a business's trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.

what to consider before starting a family business

-Clarify Expectations: What will each person contribute? -Discuss Work/Family Boundaries: What is the line that separates work from personal relationships? -Develop Good Communication: Agree about types of decisions you'll make jointly and on your own. -Clarify Long-Term Intentions: Discuss how long everyone will work full time and goals for the business. -Have an Escape Hatch: Have a Plan B.

sources of capital

-Personal savings -Relatives -Former employers -Banks & finance companies -Government agencies -Angel investors (generally an early stage investor) -Venture capitalists

small businesses statistics

-There are 28 million small businesses in the US -Of all nonfarm businesses in the US, 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 US workers' first jobs were in small business

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

SBDC (Small business development centers)

-are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application - for no charge. -funded jointly by the federal government and individual states.

downsides of home based businesses

-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

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

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 -tale over a successful firm: serve as an apprentice and eventually take over once the owner steps down

advantages of small over big business

-more personal customer service -the ability to respond quickly to opportunities

online business statistics

-online sales reached $394 billion in 2016: 10% of all retail sales; up 15.6% -all retail sales were up 2.9% in 2016 for a total of 4.9 trillion

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"

major business functions

-planning -financing -knowing customers -managing employees -keeping records

CDFI (community development financial institutions)

1. CDFIs are playing a big role in the economic 2. first formed in early 1980s; by 2009, over $1 billion flowed into CDFIs from investment companies 3. only 1% of loans were not paid back in the last 30 years

Home-based business growth

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

5 steps to starting you business in school

1. Find a problem or need 2. Zero in on specifics 3. Do research on campus, test products with students 4. move forward with your ideas. Don't wait! 5. Sacrifice

Getting cash when financing isn't an option

1. Get close to your customers. 2. Make clients pay upfront. 3. Outsource tasks on the cheap. 4. Get in front of customers quickly. 5. Become an expert. 6. Ask for help. 7. Be patient.

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

Four reasons to start your business right away

1. You don't have a mortgage or kids to take 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

some causes of small business failures pt. 4

1. carrying habits of personal extravagance into the businesses 2. not understanding business cycles 3. forgetting about taxes, insurance, and other costs of doing business 4. mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim

why home based businesses aren't easy

1. getting new customers is difficult 2. managing your time requires self-discipline 3. work and family tasks are sometimes not separated 4. government ordinances may restrict your business 5. homeowner's insurance may not cover business-related claims

some causes of small business failures pt. 3

1. not allowing for setbacks and unexpected expenses 2. buying too much on credit 3. extending credit too freely 4. expanding credit too rapidly 5. failing to keep complete, accurate records, so that the owners drift into trouble without realizing it

why take the risk?

1. opportunity 2. profit 3. independence 4. challenge

some causes of small business failures pt. 1

1. plunging in without first testing the waters on a small scale 2. underpricing or overpricing goods or services 3. underestimating how much time it will take to build a market 4. starting with too little capital

what does it take to be an entrepreneur

1. self directed 2. self nurturing 3. action oriented 4. highly energetic 5. tolerant of uncertainty

factors that increase the chances of small-business success

1. the customer requires a lot of personal attention, as in a salon 2. the product is not easily made by mass-production techniques (ex. custom-tailored clothes or custom auto-body work) 3. sales are not large enough to appeal to a large firm (ex. a novelty shop) 4. the neighborhood is not attractive because of crime or poverty. This provides a unique opportunity for small grocery stores and laundries 5. a large business sells a franchise operation to local buyers 6. the owner pays attention to new competitors 7. the business is i a growth industry (ex. computer services or web design)

some causes of small business failures pt. 2

1.. starting with too much capital and being careless in its use 2. going into business with little or no experience and without first learning something about the industry or market 3. borrowing money without planning just how and when to pay it back 4. attempting to do too much business with too little capital

highest rate of entrepreneurship activity in terms of age

55-64

SBA (small business administration)

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.

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

marketing research

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.

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.

market

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

a commercial loan officer can help

Design an acceptable business plan. Give financial advice. Lend money.

venture capitalists

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

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.

How do micropreneurs differ from other entrepreneurs?

Most entrepreneurs are committed to the quest for growth in their business. Mircorpreneurs know they can be content even if their companies never appear on a list of top-ranked businesses. Many micropreneurs are home-based businesses.

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.

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

What does the government do to promote entrepreneurship?

The government helps by creating enterprise and promise zones, offering tax breaks, enacting the JOBS Act (discussed further in Chapter 19), and "investor visas."

Why are people willing to take the risks of entrepreneurship?

The primary reasons people are will to take the risk of entrepreneurship are: (a) opportunity to share in the American dream; (b) profit, the potential to become wealthy and successful; (c) independence, becoming you own boss; and (d) challenge, the desire to take a chance.

Five mistakes business owners make

They're too afraid to take the leap! They hire the wrong people. They don't want to give up control. They become complacent. They fail to see new opportunities.

What are the advantages of entrepreneurial teams?

Whereas an entrepreneur has to wear many hats and take huge responsibility, a team allows members to combine creative skills with production and marketing skills right from the start. Having a team can also ensure more cooperation and coordination later among functions in the business.

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

entrepreneurship

accepting the risk of starting and running a business

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

immigration act of 1990

created a category of "investor visas" that encourage entrepreneurs to come to the US

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

older entrepreneurs have

greater experience and more financial resources

about half of US micropreneurs are

home based business owners: writers, consultants, video producers, architects, bookkeepers

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

incubators

offer new businesses low-cost offices with basic services

enterprise zones

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