Entrepreneurship and Starting a Small Business

Small Business Administration (SBA)

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

Chain Store

A business location that is one of many stores, all of which have central management (meaning the stores are fun by the same people) and share a brand name.

Sole Proprietorship

A business operated by a sole proprietor. One person owns and runs a business. It is the easiest kind of business to start. Someone who starts a sole proprietorship is called an entrepreneur.

Sole Proprietor

A business that is owned and typically managed by one person.

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).

Conventional (C) Corporation

A form of business ownership that provides limited liability.

Why Businesses Fail

A lack of planning and overall poor management; a lack of marketing; a lack of financial understanding; the wrong business partner; a bad location; competition.

Partnerships

A legal form of business with two or more owners.

S Corporation

A legal form of corporation for which the biggest advantage is its tax status, which is the same as a sole proprietorship.

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.

Franchisor

A person or entity that owns the rights to a franchise.

Franchisee

A person who buys a franchise.

Cannibalization

A situation in which a new franchise takes away customers from an existing franchise nearby.

Company Store

A store owned and operated by a chain.

Franchising

A type of business, not a legal form of business. Franchising can be a way to transform a business into a global enterprise. Franchising has penetrated every aspect of the global business world by offering consumers products and services that are reliable, convenient, and competitively priced. According to the U.S. Department of Commerce, every 8 minutes of every business day, a new franchise business opens. Some examples of franchises include: McDonald's, Burger King, Subway, Taco Bell, Jiffy Lube, Days Inn, Motel 6, and Hilton Hotels.

Entrepreneurship

Accepting the risk of starting and running a business.

Mentor

An adviser experienced in a particular job or type of business who acts as a guide for someone entering a field.

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.

Disadvantages of Buying an Existing Business

Can be much more expensive than building your own business. You may not like the location. There could be hidden problems, such as declining customer base, uncollectible debts owed to the business by suppliers or customers. Extensive research about the business is needed before finalizing a purchase.

Outline of a Business Plan

Cover Letter; Executive Summary; Company Background; Management Team; Financial Plan; Capital Required; Marketing Plan; Location Analysis; Manufacturing Plan; and Appendix.

Disadvantages of Partnerships

Division of profits; unlimited liability; conflict among the partners; difficult to get out.

Disadvantages of Corporations

Double taxation; more paperwork; more regulations; and owner's limited focus.

Advantages of a Sole Proprietorship

Ease of entry and exit; independence; profit retention; and master of your own destiny.

Disadvantages of a Sole Proprietorship

Financial burden; limited skills; unlimited liability; long hours; no fringe benefits; limited life span.

Successful Entrepreneurs

Have a business plan; learn to control emotions and have realistic expectations; monitor and understand their cash flow; focus on sales; watch for changes in the business; seek help; and have fun.

Limited Liability Partnership (LLP)

LLPs limit partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.

Advantages of Corporations

Limited liability; shared ownership; continuity; low tax rates; and fringe benefits.

Limited Liability

Means limited partners are not responsible for the debts of the business beyond the amount of their investment -- their liability is limited to the amount they put into the company; their personal assets are not at risk.

Disadvantages of Starting Your Own Business

More cost and risk are involved than working for someone else. It may take time to establish a product or service in the marketplace. Competitors may offer similar products or services. Owing a business can be lonely, if you are a sole proprietor. There are often long working hours. Your personal and business lives are more intertwined. Someone must fill in for you that you trust when you want a vacation.

Advantages of Partnerships

More financial resources; pooled knowledge; and risk distribution.

Double Taxation

Occurs when the owners of a corporation are taxed twice -- once when the corporation is taxed and then again when the dividends are taxed.

Why Become An Entrepreneur?

Opportunity, profit, independence, total business involvement, challenge, flexibility, and the chance to make a difference.

Dividends

Part of a firm's profits that may be distributed to stockholders as cash payments or additional shares of stock.

Angel Investors

People (usually wealthy) who invest their own funds in a business in exchange for a stake in the company.

Venture Capitalists

People or companies that invest money in businesses in return for a stake in them.

Market

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

Advantages of Buying a Franchise

Proven products/services; marketing assistance; training; operations and purchase assistance; ownership; and low failure rate.

Entrepreneurial Characteristics

Self-directed, self-nurturing, action-oriented, highly energetic, tolerant of uncertainty, drive to succeed, and perseverance.

Disadvantages of Buying a Franchise

Start-up cost; profit sharing; negative publicity by association; cannibalization; management restrictions.

Master Limited Partnership (MLP)

Structured much like a corporation in that it acts like a corporation and is traded on a stock exchange like a corporation, but taxed like a partnership and thus avoids the corporate income tax.

Advantages of Buying an Existing Business

The business has a proven track record and you can save a significant amount of time, energy, and other resources as the business already has a customer base, an inventory, and a physical structure and location. You can review important facts, such as sales numbers to determine profitability. The previous owner may be willing to train you. Sellers may want to finance the sale at a better rate than banks can offer.

Board of Directors

The group ultimately responsible for the decisions of a business.

Corporate Governance

The processes, customs, policies, laws, and institutions that affect how a corporation is directed, administered, or controlled.

Unlimited Liability

The responsibility of the business owners for all of the debts of the business.

Advantages of Starting Your Own Business

You can be your own boss, be creative, and enjoy total independence. Operate your own business any way you see fit, freely choosing equipment, location, employees, and so on. You make all the decisions about the operation of the business.