Contemporary business, 12 by kurts CB12ech05

Chapter Options for Organizing Small and Large al s o G ng i Explain franchising’s benefits for n r Businesses a Le francisors and franchisees Distinguish between small and large businesses and identify common industries for small firms Summarize the forms of business ownership and the advantages and disadvantages of each form Discuss the economic and social Explain why small businesses fail Describe recent trends in contributions of small business Describe how the Small Business Administration assists smallbusiness owners Identify the levels of corporate management mergers and acquisitions Differentiate among private, public, and collective ownership MOST BUSINESSES ARE SMALL BUSINESSES • Eighty-nine percent of firms with employees have fewer than 20 • Ninety-eight percent have fewer than 100 employees • Almost half of all sales in the U.S are made by small businesses • Small business is a launching pad for entrepreneurs What Is a Small Business? • Small Business Administration’s definition: An independently owned and operated firm that is not dominant in its field Generally: • Manufacturing businesses that employ fewer than 500 workers • Wholesalers that employ fewer than 100 workers • Retailers and other service providers with annual sales no more than $6 million • Agricultural business with annual sales no more than $750,000 • Small Business Administration has established standards for a variety of industries Typical Small Business Ventures • Compete against the world’s largest corporations Typical Small Business Ventures • Compete against the world’s largest corporations • Just over half small businesses are home-based • Since 1980, number of people working from home has doubled • Rise of the personal computer, Internet, and other communication devices • Benefits include lower costs, greater flexibility, freedom from cost of commuting • Drawbacks include isolation and less visibility • Internet can increase competitiveness of small businesses • Three in five small businesses have an Internet presence CONTRIBUTIONS OF SMALL BUSINESS TO THE ECONOMY Creating New Jobs • Three of every four new jobs are created by businesses with fewer than 500 employees • Small businesses dominate fields with strongest employment growth • More likely to employ younger and older workers than large firms • More likely to hire workers who traditionally have difficulty finding a job Creating New Industries • Many of today’s successful high tech firms—Microsoft, Dell, Cisco Systems, Yahoo!, and Google—began as small businesses • Fuel local economies • Adapt to fill needs of larger corporate community by acting as outsource firms • Adapt to shifts in consumer interests and preferences Innovation • Better than large firms at developing new and improved goods and services • Example: Netflix, an alternative to Blockbuster which began as a small business and now has annual revenue approaching $1.2 billion • Small firms develop twice as many innovations per employee as large firms WHY SMALL BUSINESSES FAIL • One new business in every three closes permanently within two years • Half fail after four years • More than 60 percent are out of business within six years • By the 10-year mark, 82 percent of all small businesses have closed permanently Management Shortcomings • Founders’ strengths in areas such as marketing or interpersonal relations are often offset by shortcomings in areas such as finance or order fulfillment • Words of warning for new small-business owners: • Learn the basics of business • Recognize your own limitations • Do market research to determine product viability and likely competitors Benefits and Problems of Franchising • Benefits • Prior performance record • Recognizable company name • Proven business model • Tested management program • Business training • Problems • Expensive franchise fees and future payments • Linked to reputation and management of the franchise INCREASING THE LIKELIHOOD OF SMALL BUSINESS SUCCESS Creating a Business Plan Business plan A written document that • Provides an orderly statement of a company’s goals • The methods by which it intends to achieve these goals • The standards by which it will measure achievements ALTERNATIVES FOR ORGANIZING A SMALL BUSINESS • Every firm falls in one of three categories of ownership Changing Legal Structures to Meet Changing Needs • A person considering launching a new business should consider these factors when deciding on the proper form of ownership: • Personal financial situations and the need for additional funds for the business’s start-up and continued operation • Management skills and limitations • Management styles and capabilities of working with partners and other members of top management • Concerns about exposure to personal liability • Form of ownership can be changed ORGANIZING AND OPERATING A CORPORATION Types of Corporations • Fall into three categories • Domestic corporation in the state in which it is incorporated • Foreign corporation in states in which it does business other than the one in which it is incorporated • Alien corporation in countries in which it does business other than where it is incorporated • A single company can operate under all three of these designations The Incorporation Process Where to Incorporate • Can incorporate in any state • More than half of Forbes 500 companies are incorporated in Delaware The Corporate Charter • Most states requires three incorporators • Incorporators file articles of incorporation • State grants a corporate charter, a legal document that formally establishes a corporation Corporate Management Stockholder Person or organization who owns shares of stock in a corporation Stock Ownership and Stockholder Rights • Annual meetings, elections of company officers • Shares classified two ways • Owners of preferred stock have limited voting rights, receive dividends before common-stock holders, and have first claim on assets (after creditors) if corporation is dissolved • Owners of common stock have limited voting rights but are last to receive income distribution Board of Directors Board of Directors Governing body of a corporation • Hires chief executive officer Corporate Officers and Managers • CEO, chief operating officer, and chief financial officer make most major corporate decisions • Managers handle ongoing functions of the organization • 2002 Sarbanes-Oxley Act tightened requirements of corporate boards and require CEOs and CFOs to personally certify the accuracy of their firm’s financial statements Employee-Owned Corporations • Workers buy shares of stock in the company that employs them • Growing popularity: 11,400 firms employing nearly 10 million people • Employees share in wealth the company generates • Managers want employees to care deeply about company’s success Not-for-Profit Corporations • Not-for-profit corporation Firm pursuing objectives other than returning a profit • 1.5 million in the U.S • Includes charitable groups, social-welfare and educational organizations, religious congregations, political parties, and labor unions • Exempt from paying taxes WHEN BUSINESSES JOIN FORCES Mergers and Acquisitions (M&A) Merger Combination of two or more firms to form one company • Vertical Combines firms at different levels in the production and marketing process to ensure adequate flow of raw materials and supplies or increase distribution • Horizontal Joins firms in the same industry that wish to diversify, cut costs, or offer expanded product lines • Conglomerate Combines unrelated firms to diversify, spur sales growth, or spend a cash surplus Acquisition Procedure in which one firm purchases the property and assumes the obligations of another Joint Ventures: Specialized Partnerships • Joint venture Partnership formed between companies for a specific undertaking • Example: Transport4, a joint venture among four U.S pipeline companies to better service oil refineries that use their services PUBLIC AND COLLECTIVE OWNERSHIP Public Ownership • A unit or agency of government owns and operates an organization • Example: Pennsylvania Turnpike Authority Government-Owned Corporations • Can result when private investors are unwilling to invest in a high-risk but socially important project • Example: Rural electrification program of the 1930s Customer-Owned Businesses: Cooperatives • Cooperative (co-op) Collective ownership of a production, storage, transportation, or marketing organization • Example: Credit unions ... Forty-eight percent of U.S businesses owned by women; one in five of these is owned by minority women • Start companies for a variety of reasons • Driven by an idea that they believe can help others... loans by private lenders • Provides some direct loans, but infrequently • Guarantees microloans to start-ups and very small firms • Licenses Small Business Investment Companies, which are run by. .. • Provides an orderly statement of a company’s goals • The methods by which it intends to achieve these goals • The standards by which it will measure achievements • Common format: • An executive