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