Ebook 21st Century business entrepreneurship (2nd edition): Part 1

Ebook 21st Century business entrepreneurship (2nd edition): Part 1 includes contents: Chapter 1 should you become an entrepreneur? chapter 2 develop a business plan, chapter 3 select a type of ownership. Please refer to the documentation for more details.

Entrepreneurship SECOND EDITION Cynthia L Greene Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States 21st Century Business Entrepreneurship, 2nd Edition Cynthia L Greene Editorial Director: Jack W Calhoun Vice President/Editor-in-Chief: Karen Schmohe Executive Editor: Eve Lewis Senior Developmental Editor: Penny Shank © 2011, 2001 South-Western, Cengage Learning ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher Editorial Assistant: Anne Kelly Marketing Manager: Diane Morgan Technology Project Manager: Lysa Kosins Content Project Management: Pre-Press PMG Senior Manufacturing Buyer: Kevin Kluck For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Production Service: Pre-Press PMG Senior Art Director: Tippy McIntosh Internal Design: Pre-Press PMG Cover Designer: Lou Ann Thesing Cover Image: Getty Images, Media Bakery ExamView® is a registered trademark of eInstruction Corp Windows is a registered trademark of the Microsoft Corporation used herein under license Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc used herein under license Permission Acquisitions Manager/Text: Mardell Glinkski-Schultz © 2008 Cengage Learning All Rights Reserved Permission Acquisitions Manager/Photo: Deanna Ettinger Student Edition ISBN 13: 978-0-538-74063-0 Library of Congress Control Number: 2010920031 Student Edition ISBN 10: 0-538-74063-9 South-Western Cengage Learning 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit cengage.com/school Printed in the United States of America 13 12 11 10 HOW TO USE THIS BOOK The 21st Century Business Series is an innovative instructional program providing instructors with the greatest flexibility to deliver business content using a modular format Instructors can create their own business courses by combining several Learner Guides in the Series to form one-semester or two-semester courses The individual Learner Guides can also be used as enhancements to more traditional business courses or to tailor new courses to meet emerging needs The design and content of each Learner Guide in the 21st Century Business Series are engaging yet easy for students to use The content focuses on providing opportunities for applying 21st Century business skills while enabling innovative learning methods that integrate the use of supportive technology and creative problem-solving approaches in today’s business world The Entrepreneurship Learner Guide covers today’s most relevant business topics including the role of entrepreneurship in the global economic recovery Topical data on how to conduct research and the important value of research as a entrepreneurship also included part o part off en entr trep epre rene neur ursh ship ip aare re aals lso o in incl clud uded ed ORGANIZED FOR SUCCESS Each chapter opens with a Project that incorporates information from each lesson within the chapter These Projects pull all of the information from the chapter together so students get a hands-on experience applying what they learned, making for a great group activity PROJECT Identify a Business Opportunity • Identify your strengths and weaknesses • Determine a business opportunity that matches your strengths and weaknesses • Use the problem-solving model to make decisions Photodisc/Getty Images Project Objectives Getting Started Read the Project Process below Make a list of any materials you will need • Think about your interests, strengths, and weaknesses • Think of business opportunities that relate to your interests Project Process 1.1 Write a short paragraph describing how an individual became a successful entrepreneur 1.2 List all your interests List business ideas that relate to each interest List your strengths and weaknesses Compare them with your list of business ideas Cross out ideas that not suit your strengths and weaknesses Jump Start provides a scenario that introduces and entices the student about the lesson ahead 1.3 Choose one of the remaining business ideas that most interests you Set financial goals for a five-year period based on the business idea you chose Demonstrate that your goals are SMART (Specific, Measurable, Attainable, Realistic, and Timely) Next, set nonfinancial goals you hope to achieve with this business Be sure to include specific activities for each goal 1.4 Consider a problem that could occur in the business that you have chosen Use the six-step problem-solving model to deal with it now Chapter Review Project Wrap-up Working with your chosen business idea, answer the six questions listed under “Compare Different Opportunities” on pages 19–20 ? Creatas/Jupiter Images HIP RIGHT FOR YOU IS ENTREPRENEURS 1.2 GOALS JUMP START Identify the characteristics of urs successful entreprene Identify the characteristics of good team members have Assess whether you ed what it takes to succe in your own business 40639_01_CH01_002-031 PP3.indd 1/5/10 8:46:10 AM KEY TERMS self-assessment, p aptitude, p 14 13 license from Shutte rstock.com re business, but befo t starting their own are excited abou think through the Gloria and Delia to slow down and a realizes they need to start our own proceeding, Glori , it’s not really easy Delia , there know that “You Riviera said process carefully this in class, Mr we talked about First, we need business When starting a business we have to to consider before are good at Then are many things ing to and what we like we what e be successful.” Think to decid ing if we want to plann and arch entrepreneur thing a lot of rese Delia sighs “This , class in is it said we should do?” Why about what Mr Rivie think you t ine their of work Wha sounds like a lot down and really exam a and Delia to slow a good idea for Glori starting a business? interests before / Used under , 2009/ ©Anton Gvozdikov, CheckPO What are INT the three Importan main purpos ce of a B es of a bus ul of Successf Characteristics Entrepreneurs would like to own businesses They m of running their but many go into Many people drea ip can be exciting, eurs Entrepreneursh In fact, statistics ess busin own become entrepren their difficult it is to run Startup businesses it not realizing how within a few years businesses will fail ess knowledge, lack show that most new ning, lack of busin plan re to poor er’s own with others, or failu fail because of the inability to work l characteristics, of entrepreneuria business right the se choo You? urship Right for 11 1.2 Is Entreprene PM 1/22/10 11:05:02 _002-031.indd 40639_01_CH01 11 Net Bookmark gives chapter-related activities for students to complete using information found on the Internet 36 iness plan? usiness P Every new business mu st have a bu succeed to those that siness plan fail, there When com plan Busin is often on paring bu ess owner e importa sinesses tha s that dev to succeed nt dif elop and fol t than busin low a busin ference—the business ess owner plan is im ess plan are s who portant for not have a more likely several rea business pla sons A busin n The busin ess plan ma ess kes you thi Meyer beg nk about an a graph all aspect ic design hours visua s of your business fro lizing the business m his home business an Stan He spent d thought many he was rea he sat down dy to start to write his it had not ma business pla until de sales an n He d profit pro He had als jections o not tho ught abou The textbook lists of needin t the possi g to hire sta several reasons bility ff if the bu why business plan too large to entrepreneu siness gre for him to rs Access www.ce s are important w handle alo a business ngage.com/scho and click on the ne Drafting plan helped ol/business/21bi link for Chapter z Sta n Read about Barb fidence in experiences star his business gain even more ara Mulford’s ting her own bus that build idea It sho iness Why did her business plan ing a we she suc d orig ? Identify at leas cessful bu him inally write his concep siness based t one way her important to her t wo business plan was on becoming a bus business pla uld be possible Wo iness owner rking on his n also hel ped Stan www.cengage business str think throu com/school/bus ate gh iness/21biz identify pro gies, recognize lim its, and blems he might enc A busin ounter ess plan ma y help you financing secure for your bu sin ess Lender a business plan before s require you will no they will financing t be able to a business sider obtain a bu financial sec Without siness loan tion of the a business Len business pla plan needed to operate the n, which wil ders will review the business and l state how also be int erested in much money how the mo the financia ney will be expenses, is l projectio and profit used Lender ns showin s will g estimate A busin d revenue, ess plan hel ps you com you write municate your busin your ideas ess plan, yo business tha to others u will have t you want By the giv tim en much tho to establish will succee e d If You will ught to the also believ convince the you communicate e that your your ideas reader tha business well on pa t your busin a loan fro per, you wi m a bank ess will suc ll It also ma cee business d Th y convince is can help suppliers you get Chapter to extend • DEVELOP credit to yo A BUSINES ur S lan PLAN 4063 0639 9_02 _02_ _CH CH0 02_0 2_03 32-0 2-05 59 PP3.indd 36 1/5/10 8:47: 52 AM iv HOW TO USE THIS BOOK REAL-WORLD FOCUS Cross-Cultural Relationships highlights the ips l Relationsh Cross-Cultura L CT CULTURA ENEURS RESPE U.S ENTREPR DIVERSITY This means marketplace rich and diverse cultures es represents a ts of different needs and wan The United Stat the ion speaks tify ulat iden pop need to erican entrepreneurs ents of the Am nishest-growing segm er to watch Spa pref ers sum One of the fast g ers To reach Spanish-speakin guage newspap Spanish Many to understand read Spanish-lan and need n will visio rs entrepreneu speaking tele mote their p of consumers, g media to pro this growing grou traditional English-speakin oted to use le channels dev that they cannot e are many cab ers also ice Today ther Many newspap serv ing or t ertis duc adv pro nt and g entertainme Spanish-speakin version ge gua -lan have a Spanish lly consumers nish-speaking Think Critica can reach Spa entrepreneurs List ways that importance of understanding and respecting everyone’s point of view and thinking about the perspectives of others Teamwork provides an activity that requires students to work together as a team 1.1 All AM 1/5/10 8:49:5 40639_01_CH01_0 02-031 PP3.in dd Tech Literacy PREPARING THE BUSINESS PLAN There are many software programs available for entrepreneurs to use when preparing a business plan A recent Internet search showed more than 345,000 matches for “business plan software.” Many entrepreneurs use these programs because they provide an easy-to-use template By plugging your specific information into the template, you get a professional-looking finished report If you decide to use a software program to create your business plan, be sure it includes all of the essential elements It is a good idea to evaluate several different programs before deciding which one to use Your choice should best match the information you want to include and your desired style And, of course, it should be one that you can use without difficulty Tech Literacy highlights how evolving technology plays a huge role in how business is conducted TEAMWORK Working in a small group, suggest ten possible jobs for each item on the job attributes checklist Choose one person to write the suggestions from your group on the board or on paper THINK CRITICALLY What are some of the advantages and disadvantages of using business plan software? 40639_02_CH02_032-059 PP3.indd 41 1/5/10 8:51:17 AM You will find the following features throughout each chapter: DID YOU KNOW ? siness Enter a Family Bu inated by family businesses According to According to the ern University of South for Maine’s Institute ess, Family-Owned Busin ne 35 percent of Fortu 500 companies are Family family-controlled nt for businesses accou gross 50 percent of U.S They domestic product nt of generate 60 perce and U.S employment new 78 percent of all job creation s economy is dom , including the vast The United State nt of all businesses many as 90 perce ed by families Even some estimates, as companies, are own and operated and medium-sized inue to be owned cont majority of smalll-A, k-fi Chic anies, such as der foun any many large comp comp the who are related to le peop by ly large ily Business a Fam the pride and ly businesses enjoy work for their fami prise They also Entrepreneurs who part of a family enter at least one more that comes with being for ly fami the in sense of mission in knowing that their businesses rema like that also fact the enjoy relatives They enjoy working with t generation Some m they care abou fiting others who their efforts are bene Advantages of Disadvantages iness of a Family Bus ©Lisa F Young, 2009/ Shutterstock.com Used under license from have several Family businesses r management drawbacks Senio held by family positions are often of their members, regardless tion sometimes situa This ty abili business means that poor It e also decisions are mad to retain makes it difficult who are s oyee empl good family not members of the enter into Family politics often making Plus, business decision een business the distinction betw it be member, why might is blurred in If you are not a family life and private life ess? a family-owned busin esses As a difficult to work in family-owned busin lems end up result, business prob e as well be prepared to mak affecting family life ly business must le join their fami companies, peop Entrepreneurs who or buy their own iduals who start themselves indiv ions e decis Unlik all e ses compromi the freedom to mak lack like ld lies wou fami they es as who work for their ies and procedur unable to set polic They may also be CheckPOINT What are some of business? ing a family vantages of enter disad the advantages and ing Business 3.1 Run an Exist 65 40639_01_CH01_002-031 PP3.indd 14 • Did You Know? always focuses on valuable and interesting data relevant to today’s business world • CheckPOINT where students can jot down answers to important questions as they go through the lessons in the chapter • Think Critically is part of the lesson assessment where students answer questions with information that was provided in the preceding lesson Think Critically Why you think the quality of the business plan is so critical to an entrepreneur’s success? Melinda Rosati wants to purchase her uncle’s barbershop Because it is an ongoing business, Melinda doesn’t think she needs to write a business plan Do you agree or disagree with Melinda’s opinion? Why or why not? Putting your business plan in writing helps you communicate your ideas to others Do you think discussing your business plan out loud in a meeting can also help you get your ideas across? Why or why not? AM 1/5/10 9:30:49 d 65 P5 i dd PP5.ind 3_CH03_060-08 40639_0 HOW TO USE THIS BOOK 40639_02_CH02_032-059 PP3.indd 38 v 1/5/10 9:46:59 AM DEVELOPMENT FOR THE FUTURE CHAPTER Market Your Business Careers for Entrepreneurs Each chapter starts out with a “Careers for Entrepreneurs” feature that focuses on a real business and reflects one of the 16 Career Clusters LRMR LeBron James is not content with just being a star on the basketball court He also wants to become a leader in the global business world He formed a sports marketing agency, LRMR Innovative Marketing and Branding, with three of his high school friends In addition to turning James into a global icon, LRMR 4.1 The Value of Marketing 4.2 Create the Marketing Plan corporate infusion partnerships.” James wants to build a new financial model for the 21st-century athlete He also 4.3 Identify Your Competition formed King James, Inc., a holding company, to contract with endorsement partners and wants to “change the sports marketing prism through leveraging of sports, celebrity, and 4.4 4.5 The Marketing Mix—Product and Price The Marketing Mix— Distribution and Promotion Throughout the book, you will find Business Math Connection This feature highlights how basic math concepts are an important part of the business world reduce tax liability Guiding principles that James has used in starting his business include • Don’t be afraid to ask for business advice • Focus on unity rather than the individual • Surround yourself with the best people • Diversify income streams • Remember that the brand is bigger than the man Think Critically What you think contributes to the success of LRMR? Identify trends that you think could influence the success of LRMR Price a Produ ct Once pricing objectives hav e been determi the possible pric ned, the next es for products step is to dete There will usu can be charged rmine ally be more than for a product Pricing may be one price that amount of com based on dem petition and, cost, or the 86 40639_04_CH04_086-125.indd 86 Demand-Based Pric ing Pricing that are willing to is determined pay for a prod by how much uct or service Potential custome customers is called demand rs are surveyed -based pricing to find out wha The highest pric t they would be e identified is the maximum willing to pay price that can Cost-Based Pric be charged ing Pricing that of an item as is determined the basis for the by using the who price charged markup price lesale cost is called cost-bas is the retail pric ed pricing A e determined the wholesale by adding a perc cost of an item entage amount Sometimes bus to iness owners pur want to sell mor chase too muc h of a particul e of it quickly ar item and To so, they product A mar mark down the kdown price is retail price of a price determi amount from the ned by subtrac the retail pric ting a percenta e of an item You down an item ge should be care below its cost ful not to mar You not wan k t to lose money Competition-B ased Pricing Pricing that is what competi tors charge for determined by considering the same good based pricing or service is calle Once you find d competition out what your you must deci competition char de whether to ges for an item charge the sam , e price, slightly more, or sligh tly less 1/5/10 8:48:38 AM COMMUNICATE Call your local Chamber of Commerce and ask them for information that would help the owner of a new dogwalking business that is opening in your town or city Do not forget information on demographics and psychographics Also, ask for statistics on dog ownership in your area Write a report on your findings and present it to your class Business Ma th Connectio 110 n If Luisa Ramirez , a gourmet food $1.77 a can and store owner, buy s artichoke hea wants to add 40 percent to rts for would the reta the wholesale il (markup) pric cost, what e be? If Luisa $10.50 a bott usually sells oliv le and wants to e oil for mark down the sell more oliv price 20 percent e oil, what wou to try to ld the markdo wn price be? SOLUTION Use the followin g formulas to calculate retail Wholesale cost pric e Percentage markup Ma $1.77 rkup amount 0.40 Wholesale cost $0.71 Markup amo unt Retail pric $1.77 e $0.71 $2.48 Use the followin g formulas to calculate mar Retail price kdown price Percentage mar kdo wn Markdown $10.50 amount 0.20 Retail price $2.10 Markdown amo unt Markd $10.50 own price $2.10 $8.40 Chapter • MAR KET YOU R BUSINESS 40639_04_CH04_0 86-125.indd 110 1/5/10 8:48:5 AM Communicate is an activity 4.2 Create the Marketing Plan 40639_04_CH04_086-125.indd 97 vi HOW TO USE THIS BOOK 97 1/5/10 8:49:17 AM to reinforce, review, and practice communication skills HANDS-ON LEARNING Chapter Summa ry of customers and satisfy the needs t is used to determine A Marketing is who their target marke want must determine and customers need B New businesses identifies what your rch resea t C Marke eting The Value of Mark 4.1 Each chapter ends with a comprehensive yet concise Assessment The Chapter Summary provides a quick review of each lesson covered in the chapter ASSESSMENT CHAPTER t research involves six steps ed Primary data marke goals will be achiev eting Plan A The marketing strategy identifies howdocument for the business Create the Mark B plan is a guiding 4.2 ting C A written marke petition Identify Your Com 4.3 4.4 The Marketing Mix— Product and Price 4.5 The Marketing Mix— Distribution and Promotion direct and indirect types of competition— and weaknesses A There are two titors’ strengths analysis finds compe for customer loyalty by asking B A competitive maintain customer ives C Businesses can e, and offering incent servic ior super feedback, providing The Apply What You Learned section contains openended questions that students complete so that they can apply what they learned with their own ideas and thoughts a business sells cts and services is the different produ expenses A A product mix revenues exceed be high enough that B Prices need to Vocabulary Builder is or indirect ution may be direct selling, and A Channels of distrib e adver tising, publicity, personal includ B Promotion can sales promotions abulary Builder a quick way for students to match up definitions with the key terms that were highlighted throughout the chapter a advertising b channels of distribution er in letter of the answ nition Write the that best fits the defi Choose the term not be used Some terms may about zing information the space provided n c direct competitio recording, and analy ting, collec for A system services n etitors, goods and d indirect competitio ular customers, comp interested in a partic are that anies or comp e market research to pay for it The individuals able and g willin e and are product or servic f market share money selling its of most s a business that make g marketing Competition from r products the same or simila h marketing mix coverage generated by media g, and Free promotion oting, distributin i marketing plan prom g, pricin sses—planning, gy mers A set of proce custo of j marketing strate y the needs selling—used to satisf ess k product mix et owned by a busin mark a of ntage are Perce from the time they city take publi es l servic and cts Routes that produ they are consumed m.target market ct or service produced to the time ess about a produ unication by a busin Paid form of comm Voc 18 What are the ET YOUR BUSINESS Chapter • MARK 122 advantages and disadvant ages of publicity ? AM 1/5/10 8:53:06 40639_04_CH04_0 19 What is the purpose 86-125.indd 122 age.com/ www.cengusiness/21biz school/b to portant is it im pts ? Why Conce business nt to a Review importa mers so ary data of prim e types earch? scribe th rket res 10 De ting ma conduc market What research is 12 Why 13 th indirect ect and r when ould pics sh What to y ma e primar your dir identify rtant to it impo is the pu rket p of last ste lete the to comp results? portant the is it im aluate ess—ev 11 Why oc pr research nside you co ify your u ident w yo 14 Ho tion? competi ing your develop rtant? can be used as a quiz to ensure students grasp all of the key concepts presented in the chapter rpose of 21 What is the importance of iden tifying short-ter 22 What are som e of the ways 23 Why you need ng plan? Apply What marketi t mix? produc ices s of set method vertise? esses ad sin lished bu Why sinesses new bu estab should 16 Why rtise? to adve se an u choo w yo 17 Ho sing adverti medium? Make Academic Connections provides 4_086-1 25.indd 123 instructors with questions and problems that students need to solve that refer to other areas of study such as Economics, Math, Social Studies, Research, etc This enables students to see how all areas of academics work together in the business world and apply that knowledge 40639_ 04_CH0 need Make Academic Connections 27 Math You own a photography shop The wholesale price of a digital camera is $225 You use cost-based pricing and mark up the price by 35 percent How much will you charge for the digital camera? There is another photography store in your town that sells a similar camera for less money Should you lower your price? Why or why not? nt me Assess 123 124 Ch Chap hapt ptter er • MARKET YOUR to increase mark et share? to write a mark eting plan? You Learned BUSINESS 40639_04_CH0 4_086-125.indd 124 28 Math You have two digital cameras left from last year’s line and would like to sell them quickly Their retail price is $325 You decide to mark them down 30 percent What will the markdown price be? 1/5/10 8:53:47 AM The Ethical Dilemma section of the Chapter Assessment presents a situation where students must use their critical thinking skills to answer how they would handle the situation being presented This is an excellent chance for students to have open discussion about what they learned and how it applies to the situation at hand AM 8:53:27 1/5/10 29 Research Use the Internet to find the names of four companies that might be able to help you conduct market research Record information such as how long the company has been in business and what kinds of market research the business does Record your findings and compare them with the findings of other students 30 Research You are opening a home entertainment store Locate distributors, wholesalers, and manufacturers for one of your products Choose three brands of one item and contact the distributor to obtain information about pricing and delivery What is the wholesale price of each product? Find the same product in a local store What is the retail price? Calculate the markup percentage 31 Communication You are opening a fitness center Because you have limited financial resources, you need to use your promotion budget carefully Write a press release to send to the local newspapers and radio and television stations You are also buying time on a local radio station Write the commercial that will air on the radio List some publicity activities that could be used to promote your business Ethical Dilemma 32 You offer a math tutoring service for students at the elementary and middle schools in your neighborhood You usually charge $15 per hour You recently received a message from the mother of a fifth grader inquiring about your services and pricing She was referred by the mother of another student you tutor You would like to charge her more than $15 per hour because you know that her family is wealthy What would you do? Is it fair for you to raise your price because you know the family has more money? What problems you think you might experience if you charge customers different prices? What circumstances, if any, would justify charging your customers different prices? Assessment 40639_04_CH04_086-125.indd 125 m goals? 24 You want to start a word processing com students who pany that targe want someone ts high school else to key their that would help term papers Desi you determine gn a survey if there is a mark Determine the et for your com best way to adm pany inister the surv not from your ey Have 30 stud class fill out the ents who are survey Analyze written form the results and put them in 25 You are think ing about open ing a lawn-serv a small group ice business Wor of classmates, king with develop a custo competitors for mer profile Mak the lawn-serv e a list of ice business Prep and create a strat are a competit egy for dealing ive analysis with your com 26 You are a petition home improvem ent contractor distribution play What role will in your business channels of ? Detail the prici Which form of promotion will ng method you work best for will use one-page repo you? Outline rt your plans in a ting pr scribe 15 De otions? 20 Why are pers onal-selling skill s impo Review Concepts are custo stomers? Why your cu listen to of sales prom 125 1/5/10 8:52:44 AM HOW TO USE THIS BOOK vii ABOUT THE AUTHOR Cynthia L Greene taught business education at the high school level for 25 years in the Fulton County School System in Atlanta, Georgia She served as the program specialist for Business and Information Technology for the Georgia Department of Education for six years Ms Greene is an active member of the National Business Education Association, serving as President and member of the Entrepreneurship Standards Committee She is the business manager of the Georgia Association of Career and Technical Education Reviewers Betty A Banks-Burke Business Education and Computer Science Teacher Hudson High School Hudson, Ohio Katherine Jones Nance Career and Technical Education Teacher Parkland High School El Paso, Texas Scott Christy Business and Information Technology Instructor Green Bay East High School Green Bay, Wisconsin Jenifer Clary Richards Business Education Teacher Spartanburg High School Spartanburg, South Carolina Jan Goddard Business and Computer Science Teacher Norcross High School Norcross, Georgia Vickie Banks Reed Entrepreneur and Business Owner Coppell, Texas Vernon W King, Jr Marketing Education Coordinator Landstown High School Virginia Beach, Virginia Dennis R Krejci Business Teacher Tri County High School DeWitt, Nebraska viii ABOUT THE AUTHOR Clay N Stiles Business Education Teacher El Modena High School Orange, California CONTENTS CHAPTER Should You Become an Entrepreneur? CHAPTER Develop a Business Plan 32 CAREERS FOR ENTREPRENEURS UPS 32 CAREERS FOR ENTREPRENEURS J K Rowling PROJECT Identify a Business Opportunity 2.1 Why a Business Plan Is Important 34 1.1 All about Entrepreneurship 2.2 What Goes into a Business Plan? 39 50 PROJECT Get Started on Your Business Plan 33 1.2 Is Entrepreneurship Right for You? 11 1.3 Explore Ideas and Opportunities 17 2.3 How to Create an Effective Business Plan 1.4 Problem Solving for Entrepreneurs 23 ASSESSMENT AND REVIEW Checkpoint ASSESSMENT AND REVIEW Checkpoint 6, 9, 12 ,13, 15, 18, 20, 21, 25, 26 Think Critically Make Academic Connections Chapter Assessment 10, 16, 22, 27 10, 16, 22, 27, 31 28–31 Jump Start Communicate Did You Know? Tech Literacy Teamwork Cross-Cultural Relationships Think Critically Make Academic Connections Chapter Assessment 4, 11, 17, 23 19 19 5, 14, 20, 26 Net Bookmark 13 Business Math Connection 21 38, 49, 55 38, 49, 55, 59 56–59 SPECIAL FEATURES Jump Start SPECIAL FEATURES 36, 37, 44, 48, 53, 54 34, 39, 50 Communicate 46 Did You Know? 51 Tech Literacy 41 Teamwork 35, 43, 52 Cross-Cultural Relationships 54 Net Bookmark 36 Business Math Connection 37 CONTENTS ix LOW-COST FRANCHISES Franchise Description Instant Tax Service Retail tax preparation Jani-King Commercial cleaning service Quiznos Subs Franchise Fee Startup Costs Royalty Fee $39,000 $39,000–$89,000 20% $8,600–$16,300 $11,300–$34,100 10% Submarine sandwiches, soups, and salads $25,000 $24,100–$341,800 7% Kumon Math and Reading Centers Supplemental education $1,000 $30,960–$129,400 $30+/student/ month Coffee News Weekly newspaper distributed at restaurants $6,000 $9,400 $20–$75/week Evaluate a Franchise There are many things to consider when purchasing a franchise These are questions you should ask to evaluate a particular franchise What is the projected demand for the franchised product or service in the area in which I want to locate? Will I be guaranteed an exclusive territory for the duration of the franchise term, or can the franchisor sell additional franchises in the territory? What are the costs and royalty fees associated with the franchise? How profitable have other franchises in the area been? What other franchisees think of the franchisor? How long has the franchisor been in business? How profitable is the franchisor? What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection? Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise? What happens if I want to cancel the franchise agreement? Some franchisors make false or misleading claims about their franchises To make sure that you are not being cheated or misinformed, carefully study the documents the franchisor gives you Be suspicious of any company that will not back up its claims with written financial statements Also beware of high-pressure sales tactics A franchisor that tries to get you to sign a franchise agreement right away is probably not offering you a good business opportunity It is also a good idea to talk to other franchisees to learn about their experiences with the franchise Do not commit to a franchise until you 3.2 Own a Franchise or Start a Business 71 are completely sure of your decision Never allow yourself to be pressured into making the decision too quickly Franchise agreements are complicated legal documents Because they can be difficult to understand, you should never sign one without consulting an attorney Let your attorney know what promises were made to you orally Then ask your attorney to confirm that the same promises appear in the contract CheckPOINT What are some of the questions you should ask when evaluating a franchise opportunity? Start Your Own Business For one reason or another, running an existing business, joining a family business, or operating a franchise may not be possible for you, or it might not be right for you This means that to be an entrepreneur, you will have to establish a business of your own You need to consider the many advantages and disadvantages of starting your own business Advantages of Starting Your Own Business ©SKdiz, 2009/Used under license from Shutterstock.com Entrepreneurs who start their own business get to make decisions about everything from where to locate the business to how many employees to hire to what prices to charge They are completely independent and decide their own destinies Many entrepreneurs find enormous satisfaction in starting their own business Many are attracted to the challenge of creating something entirely new They also get a great feeling of triumph when their business turns a profit What kind of decisions entrepreneurs have to make when starting their own business? 72 Chapter • SELECT A TYPE OF OWNERSHIP David Srivastava started his mail-order business, In a Jam, from his home David started by selling dried fruit through the mail After a year and a half of disappointing sales, David began offering preserves and jams, products he felt had greater sales potential He also put more effort into packaging, and he designed the labels for the jars himself His instincts proved correct: eight years after starting out alone in his basement, David now has accounts with several large retail stores, and his company has 14 full-time employees There are also many risks to consider when you start your own business You must estimate demand for your product or service There is no certainty that customers will purchase what you offer Entrepreneurs who join family businesses, buy an existing business, or buy franchises not have this uncertainty because it is already known that customers will buy the product or service Entrepreneurs who start their own business also must make decisions that other types of entrepreneurs need not make What product or service to offer, the location, what employees to hire, and many other decisions must be made The results of what may seem to be good decisions may not always be positive Lucy Chang realized how difficult it is to start a new business from scratch when she opened a kitchen accessories store Lucy had considered purchasing a store franchise but had ruled it out because of the high franchise fee Lucy’s problems began when she discovered that her customers thought her location was inconvenient As a result, fewer customers shopped in the store than Lucy had projected Contacting suppliers was more difficult than Lucy anticipated, and many What risks does a new business of them proved to be unreliable The highowner face when making product decisions? priced items Lucy purchased in the hope of increasing profits did not sell well In small groups, debate the pros and cons of starting a business from scratch for each of the following areas: restaurant, retail gift shop, and home improvement ©Raphael Daniaud, 2009/Used under license from Shutterstock.com Disadvantages of Starting Your Own Business TEAMWORK CheckPOINT Why many entrepreneurs prefer to start new businesses rather than purchase existing businesses or franchises? 3.2 Own a Franchise or Start a Business 73 3.2 ASSESSMENT Think Critically What extra expenses could you expect to pay when operating a franchise as compared to operating a non-franchised company? Could you save money in expenses by operating a franchise? If so, how? What are the advantages and disadvantages of owning a franchise? Do you think the advantages outweigh the disadvantages? Why or why not? Do you think starting a business from scratch would be more challenging than buying an existing business or franchise? Why or why not? In your opinion, what would be the greatest advantage of starting a new business? What would be its greatest disadvantage? Make Academic Connections Research Identify a franchise that interests you Research the franchise, and then evaluate the opportunity using the seven questions in this section Write a short report on your findings At the end of your report, explain whether you think this franchise is a good opportunity Math John and Molly Gonzales want to save enough money so that in five years they can purchase a cleaning service franchise How much will they need to save each year if the franchise fee is $19,500 and startup costs are $15,200? (Do not consider interest earned on savings when calculating your answer.) If the company earns $24,700 in profits the first year, and the royalty fee is percent, how much will the Gonzales’ first royalty payment be? Communication You are the owner of a coffee-shop franchise The franchise agreement specifies that the franchisee must submit all advertising plans for approval Write a memo to the franchisor outlining your plan to market the franchise’s new bagels 74 Chapter • SELECT A TYPE OF OWNERSHIP 3.3 CHOOSE THE LEGAL FORM OF YOUR BUSINESS JUMP START GOALS ©ZanyZeus, 2009/Used under license from Shutterstock.com After careful consideration, Abbie and Kaito decided to start their own business Now they had to decide what form of business ownership would work best for them Abbie and Kaito could form a legal partnership and draw up a partnership agreement But they also wanted to consider the advantages and disadvantages of incorporating their business because they liked the idea of limiting their liability Someone suggested they look into incorporating as an S corporation What advice would you give them? Compare a sole proprietorship and a partnership Describe a corporation KEY TERMS sole proprietorship, p 75 partnership, p 75 corporation, p 75 share of stock, p 78 board of directors, p 78 dividends, p 78 liability, p 79 Forms of Business Ownership Once you decide to start your own business, you must decide what type of ownership the business will have There are three main types of ownership arrangements A business that is owned exclusively by one person is a sole proprietorship A business owned by two or more people is a partnership A business with the legal rights of a person that is independent of its owners is a corporation In addition, there are alternative forms of corporations Sole Proprietorship Sole proprietorships enable one person to be in control of all business aspects Sole proprietorships may be very small businesses with just a few employees, or they may be large businesses with hundreds of employees Advantages The government exercises very little control over sole proprietorships, so such businesses can be established and run very simply Accurate tax records and certain employment laws must be met, but these 3.3 Choose the Legal Form of Your Business 75 are usually the only forms of government regulation on a sole proprietorship For this reason, the sole proprietorship is by far the most common form of ownership in the United States Disadvantages It can be difficult to raise money for a sole proprietorship You are the only person contributing money to the business Also, owners of sole proprietorships face a risk that owners of partnerships or corporations not If a sole proprietorship fails and debts remain, the entrepreneur’s private assets may be taken to pay what is owed Partnership Many entrepreneurs prefer to go into business with one or more partners so that they have someone with whom to share decision-making and management responsibilities Advantages Running a business as a partnership means that you will not have to come up with all of the capital alone It also means that any losses the business incurs will be shared by all of the partners Partners often offer different areas of expertise, which can strengthen the business Like sole proprietorships, partnerships face very little government regulation Disadvantages Some entrepreneurs not like partnerships because they not want to share responsibilities and profits with other people They fear being held legally liable for the errors of their partners Partnerships can also lead to disagreements and can end bitterly Partnership Agreement When two or more entrepreneurs go into business together, they usually sign a partnership agreement, which sets down in writing the rights and responsibilities of each owner It identifies the following Name of the business or partnership and names of the partners Type and value of the investment each partner contributes Managerial rights and responsibilities of each partner Accounting methods to be used Division of profits and losses among the partners Salaries to be withdrawn by the partners A partnership arises whenever two or more people co-own a business and share in the profits and losses of the business Access www cengage.com/school/business/21biz and click on the link for Chapter Follow the link and read the article on partnerships Then name and describe three common types of partnerships www.cengage.com/school/business/21biz 76 Chapter • SELECT A TYPE OF OWNERSHIP Duration of the partnership Conditions under which the partnership can be dissolved Distribution of assets upon dissolution of the partnership 10 Procedure for dealing with the death of a partner 3.3 Choose the Legal Form of Your Business 77 CheckPOINT Why are sole proprietorships the most common form of business ownership? Corporation Unlike a sole proprietorship or a partnership, a corporation is treated independently of its owners Since a corporation has the legal rights of a person, the corporation, not the owners, pays taxes, enters into contracts, and may be held liable for negligence Corporation Basics ©Golden Pixels LLC, 2009/Used under license from Shutterstock.com Ownership of a corporation is in the form of shares of stock A share of stock is a unit of ownership in a corporation People who own stock in the corporation are called shareholders or stockholders Every corporation has a board of directors, a group of people who meet several times a year to make important decisions affecting the company The board of directors is responsible for electing the corporation’s senior officers, determining their salaries, and setting the corporation’s rules for conducting business The board of directors also decides how much the corporation should pay in dividends Dividends are distributions of profits to shareholders by corporations The company’s officers, not the board of directors, are responsible for the day-to-day management of the corporation What are the duties of the board of directors? 78 Chapter • SELECT A TYPE OF OWNERSHIP Tech Literacy SOCIAL NETWORKING AND BUSINESS E-mail has become a necessity for most business owners today to communicate with employees, shareholders, suppliers, and customers Now social networking is entering the business scene Business owners are beginning to find new and creative ways to use these sites for business promotion Twitter allows users to send very short messages called tweets that are no more than 140 characters long Business owners find it a good way to keep their name in front of people who have a connection with or interest in their business Some businesses also use it to announce special offers LinkedIn is a social networking site aimed specifically at business It can be used to search for consultants and contractors It has also become a major source for posting job openings YouTube is a great way to get information out to prospects and customers You can make a short promotional video demonstrating your product or service or have current customers provide testimonials about it A short e-mail can direct prospective customers to your YouTube video THINK CRITICALLY Why are social networking sites useful in business? Disadvantages Setting up a corporation is more complicated than setting up a sole proprietorship or a partnership To incorporate a business means to set up a business as a corporation To incorporate, you will need the assistance of a lawyer, who will help you file articles of incorporation with the state official responsible for chartering, or registering, corporations Because of this, establishing a corporation can be costly Articles of incorporation must be written which fully detail the purpose of the business If the articles are not well written, the corporations’ activities can be limited Corporations are subject to much more government regulation than are sole proprietorships or partnerships Another drawback of incorporation is that income is taxed twice A corporation pays taxes on its income, and shareholders pay taxes on the dividends they receive from the corporation This means that the corporation’s profits are taxed as corporate income and again as individual income This is known as double taxation Advantages If the corporate form of ownership is complicated and costly, why entrepreneurs set up corporations? Liability is the main reason Liability is the amount owed to others The shareholders’ liability is limited to the amount they invested when they purchased company stock Incorporation allows businesses to raise money by selling more stock Lenders are also more willing to lend money to corporations than to sole proprietorships or partnerships Finally, because shareholders not participate in the management of a corporation, the top shareholder of the company can change, through the buying and selling of stock, without disrupting the day-to-day operation of the business TEAMWORK As a class, make a chart of the three legal forms of business ownership List the advantages and disadvantages of each 3.3 Choose the Legal Form of Your Business 79 Photodisc/Getty Images How are taxes handled for the various forms of corporations? S Corporation Small corporations can elect to be treated as an S corporation An S corporation is a corporation organized under Subchapter S of the Internal Revenue Code whose income is taxed as a partnership Unlike regular corporations, an S corporation is not taxed as a business Only, the individual shareholders are taxed on the profits (dividends) they earn S corporations must follow the same formalities and record-keeping procedures as regular corporations They are also managed by a board of directors and officers Limited Liability Company A limited liability company (LLC) is a legal form of business that goes further than an S corporation in providing the benefits of partnership taxation and limited personal liability for the owners of the business The LLC is not subject to the rules for an S corporation, so it is simpler to operate Owners of LLCs are known as members—not shareholders Unlike shareholders, members can participate in the management of the business The disadvantages of an LLC are that the type of businesses may be limited by state law, a single owner cannot establish an LLC, and many states limit the life of an LLC CheckPOINT What is the main benefit of setting up your business as a corporation? 80 Chapter • SELECT A TYPE OF OWNERSHIP 3.3 ASSESSMENT Think Critically Which you think is more risky: a sole proprietorship or a partnership? Explain your answer What would be the advantages and disadvantages of forming a partnership with a friend? Why you think the government regulates corporations more closely than it does sole proprietorships or partnerships? Make Academic Connections Communication With a partner, write a skit about two people who wish to form a partnership Decide on a business to enter and the duties each person will perform in the business In the skit, the partners should negotiate the terms of the partnership agreement Math Caren McHugh opened Best Foot Forward, a shoe store catering to women To raise money, she organized as a corporation She created 500 shares of stock, each worth $75 Caren holds 260 of the shares for herself She sells the rest in even amounts to six investors How many shares does each investor own? If Best Foot Forward fails and has $65,000 in debt, for how much would each investor be liable? Business Law Create a chart comparing a sole proprietorship, a partnership, a corporation, an S corporation, and an LLC Rate each legal form on the following: simple to start, decisions made by one person, low initial cost, limited liability, limited government regulation, ability to raise capital, and double taxation of profits 3.3 Choose the Legal Form of Your Business 81 CHAPTER ASSESSMENT Chapter Summary 3.1 Run an Existing Business A An existing business has an established customer base, relationships with suppliers, and records of profits made in the past However, it may not be making a profit, or other problems may exist B Joining a family business has advantages, such as pride in the business and enjoyment in working with relatives But family politics can negatively affect the business and family life 3.2 Own a Franchise or Start a Business A Purchasing a franchise provides an established product or service for you to sell But franchise ownership can be expensive, and it does not allow much room for independent decision making B Creating an entirely new business offers complete independence and satisfaction It can be risky because there is no guaranteed demand for your product or service 3.3 Choose the Legal Form of Your Business A A sole proprietorship is easy to establish and has only limited government regulation However, it is difficult to raise money, and the owner faces risk of losing personal assets if the business fails A partnership provides more capital, and financial losses are shared Owners are legally liable for the other partners’ errors B A corporation is treated independently of its owners, has the legal rights of a person, offers limited liability to its owners, and can raise capital by selling more shares of stock Vocabulary Builder Choose the term that best fits the definition Write the letter of the answer in the space provided Some terms may not be used Weekly or monthly payment made by the owner of the franchise to the seller of the franchise A business owned exclusively by one person Group of people who meet several times a year to make important decisions affecting the company b business broker c corporation d dividends A unit of ownership in a corporation e franchise A person who sells businesses for a living f franchise fee A business owned by two or more people g liability Distributions of profits to shareholders by corporations h partnership A business with the legal rights of a person i royalty fee A legal agreement that gives an individual the right to market a company’s products or services in a particular area j share of stock 10 The amount owed to others 82 a board of directors Chapter • SELECT A TYPE OF OWNERSHIP k sole proprietorship l valuator Review Concepts 11 What are the advantages of buying an existing business? What are the disadvantages? www.cengage.com/ school/business/21biz 12 What are some of the compromises that must be made by an entrepreneur who joins the family business? 13 Where can an entrepreneur obtain information about purchasing and operating a franchise? 14 Why should an entrepreneur consult with an attorney prior to signing a franchise agreement? 15 What kinds of decisions need to be made when starting a new business? 16 What are the risks in starting your own business? 17 Why owners of sole proprietorships face more risks than owners of partnerships or corporations? Assessment 83 18 What is the purpose of the partnership agreement? 19 What decisions does a corporation’s board of directors make? 20 What is the benefit of an S corporation? a limited liability company? Apply What You Learned 21 You decide to start a business selling CDs over the Internet What type of ownership will your business have (sole proprietorship, partnership, or corporation)? Why did you choose this form? 22 You are meeting with the owner of an ice cream shop you would like to purchase? What specific questions are you going to ask her? What documents you want to see? How will you evaluate whether or not to purchase this business? 23 Your family owns a successful restaurant You are trying to persuade them to open another restaurant in a different part of town What information will you present to persuade them to adopt your idea? 24 The existing business you have purchased has trouble with suppliers The previous owner did not pay them in a timely manner, and many of them refuse to ship goods to you on credit What actions would you take to improve this situation? 84 Chapter • SELECT A TYPE OF OWNERSHIP Make Academic Connections 25 Math You have purchased a car wash franchise The franchise fee was $25,000 You must pay percent of your earnings in royalty fees In your first year, you paid $10,000 for equipment, $4,300 for operating costs, and $10,700 for part-time employees Your first-year revenues were $120,000 Calculate the total expenditures for the first year What was your profit? What will profits be in your second year if total revenues and costs remain the same? (Note: You not need any new equipment.) 26 Research Use the newspaper, Internet, magazines and other materials to research business opportunities Find a business for sale that interests you Find out information about purchasing it Include projected earnings and operating costs If it is a franchise, include franchise fees and royalties Do you think this would be a good investment? Why or why not? 27 Communication You want to buy a clothing boutique Write a letter to the owner of the store expressing your interest and requesting the necessary information you need to make a decision 28 Math Marta Vasquez is one of three partners in a car dealership The division of profits and losses as specified in the partnership agreement is 60 percent for Marta, 25 percent for the second partner, and 15 percent for the third partner The dealership has recently lost a lawsuit and must pay damages of $1,200,000 What is Marta’s liability? What is the liability of each of the other two partners? 29 Business Law Use the Internet to learn how to form a corporation in your state What are the requirements? What are the restrictions? How does the government regulate corporations? Write a one to two-page paper on your findings Be prepared to share your report with the class Ethical Dilemma 30 You have purchased a copy of the newest version of the Windows operating systems for the computers in your office It was expensive for you to update your systems, but you felt it was important to keep your equipment up to date Your friend, Jeff, who is a sole proprietor and is struggling to get his business going, really needs the new version of Windows, but he does not have the cash to pay for it He asks you if you would mind sharing your software license with him What would you do? Assessment 85 ... 91, 93, 96, 98, 99, 10 2, 10 4, 10 5, 10 8, 11 2, 11 7, 12 0 Think Critically 94, 10 0, 10 6, 11 3, 12 1 Make Academic Connections Chapter Assessment Jump Start 12 2? ?12 5 88, 95, 10 1, 10 7, 11 4 Communicate 97... Think Critically 13 0, 13 2, 13 3, 13 7, 13 8, 14 2, 14 4, 14 6 13 4, 13 9, 14 7 ASSESSMENT AND REVIEW Checkpoint 15 5, 15 9, 16 2, 16 5, 16 9, 17 0 Make Academic Connections 13 4, 13 9, 14 7, 15 1 Think Critically... Connections 16 0, 16 6, 17 1, 17 5 14 8? ?15 1 Chapter Assessment 16 0, 16 6, 17 1 17 2? ?17 5 SPECIAL FEATURES Jump Start 12 8, 13 5, 14 0 SPECIAL FEATURES Communicate 13 2 Jump Start Did You Know? 13 3 Communicate 17 0