www.ebook3000.com Small Business Management 18e LAUNCHING & GROWING ENTREPRENEURIAL VENTURES Justin G Longenecker Baylor University J William Petty Baylor University Leslie E Palich Baylor University Frank Hoy Worcester Polytechnic Insitute Australia • Brazil • Mexico • Singapore • United Kingdom • United States Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Small Business Management: Launching & Growing Entrepreneurial Ventures, 18e â 2017, 2014 Cengage Learningđ Justin G Longenecker J William Petty Leslie E Palich Frank Hoy 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 Vice President, General Manager, Social Science & Qualitative Business: Erin Joyner WCN: 02-200-203 Product Director: Jason Fremder Content Developer: John Sarantakis Product Assistant: Jamie Mack Marketing Director: Kristen Hurd Marketing Manager: Emily Horowitz Marketing Coordinator: Christopher Walz Senior Content Project Manager: Kim Kusnerak Manufacturing Planner: Ron Montgomery Production Service: SPi Global Senior Art Director: Linda May Cover/Internal Designer: Joe Devine/Red Hangar Design 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 Unless otherwise noted all items © Cengage Learning Library of Congress Control Number: 2015947525 ISBN: 978-1-305-40574-5 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cover Image: © Joe Devine Intellectual Property Analyst: Diane Garrity Project Manager: Sarah Shainwald Design Elements: Hand writing on iPad: ©Ximagination/iStockphoto.com; Rocket ship: ©07_av/iStockphoto com; Glass doors with handles: ©Marlon Lopez MMG1 Design/ Shutterstock.com; Come in Open sign: ©FooTToo/Shutterstock.com; Open Looking Ahead/Closed Looking Back signs: ©robertlamphoto/ Shutterstock.com; iPad: ©Ilja Generalov/Shutterstock.com; Compass on map: ©OlegDoroshin/Shutterstock com; Glowing globe over hand: ©solarseven/Shutterstock.com; Seedling growing: ©Kletr/ Shutterstock.com Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world Find your local representative at www.cengage.com Cengage Learning products are represented in Canada by Nelson Education, Ltd To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America Print Number: 01 Print Year: 2016 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Brief Contents Part Part Part Part Part Entrepreneurship: A World of Opportunity The Entrepreneurial Life Integrity, Ethics, and Social Entrepreneurship 36 Starting from Scratch or Joining an Existing Business Starting a Small Business Franchises and Buyouts The Family Business 64 95 122 Developing the New Venture Business Plan The Business Plan: Visualizing the Dream The Marketing Plan The Organizational Plan: Teams, Legal Structures, Alliances, and Directors The Location Plan 10 Understanding a Firm’s Financial Statements 11 Forecasting Financial Requirements 12 A Firm’s Sources of Financing 13 Planning for the Harvest 145 174 197 229 258 295 319 351 Focusing on the Customer: Marketing Growth Strategies 14 15 16 17 18 Building Customer Relationships Product Development and Supply Chain Management Pricing and Credit Decisions Promotional Planning Global Opportunities for Small Businesses 371 399 430 453 478 Managing Growth in the Small Business 19 20 21 22 23 Professional Management and the Small Business Managing Human Resources Managing Small Business Operations Managing the Firm’s Assets Managing Risk Cases/Video Cases Index 505 534 567 597 624 646 694 Brief Contents iii Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Contents Part Entrepreneurship: A World of Opportunity In the Spotlight: Table Occasions, Inc 1 1-1 Small Size, Great Significance 1-2 Small Business and Entrepreneurial Opportunity: Is There a Difference? 1-2a What Is a Small Business? 1-2b What Is an Entrepreneurial Opportunity? 1-3 Entrepreneurial Qualities: Big Ego Not Required 1-3a Founders and Second-Stage Entrepreneurs 1-3b Franchisees Living the Dream Advice from Experienced Entrepreneurs 1-3c Entrepreneurial Teams 1-3d Social Entrepreneurs 1-3e Women Entrepreneurs 1-3f Be a Small Business Owner Who Thinks and Acts Like an Entrepreneur Living the Dream Honoring Women Entrepreneurs Living the Dream My First Step 1-4 Your Motivations for Owning a Business 1-4a Types of Entrepreneurial Motivations 1-4b Understanding Your Paradigm Living the Dream LeiLei Secor: NFIB Young Entrepreneur of the Year 1-5 The Entrepreneur’s Competitive Edge 2-4 Building a Business with Integrity 18 21 25 30 30 Chapter 2 Integrity, Ethics, and Social Entrepreneurship 36 In the Spotlight: The Home Grown Farm 36 2-1 What Is Integrity? 38 44 46 47 48 49 50 2-4a The Foundations of Integrity 2-4b Leading with Integrity 2-4c An Ethical Organizational Culture 2-4d Better Business Bureaus 2-4e The Ethical Decision-Making Process 50 51 51 53 53 2-5 Social Entrepreneurship: A Continuing Trend 55 2-5a Social Entrepreneurship and the Triple Bottom Line 2-5b Small Business and the Natural Environment Living the Dream Green Ventures That Don’t Go into the Red 24 28 iv 2-3a Small Companies and the Legitimacy Lie 2-3b Integrity and the Internet 2-3c Integrity and Doing Business Abroad Living the Dream Online Stalkers May Be Closer Than You Think! 2-3d The Integrity Edge 16 1-6 Building an Entrepreneurial Legacy 40 42 44 2-3 The Challenges and Benefits of Acting with Integrity 44 14 15 16 25 25 26 26 28 1-7 Where To from Here? 2-2a The “Big Three” Stakeholders—Owners, Customers, and Employees 2-2b Social Responsibility and Small Business 2-2c Integrity and Governmental Regulations 10 10 11 12 12 13 1-5a Integrity and Responsibility 1-5b Customer Focus 1-5c Quality Performance 1-5d Innovation 1-5e Niche Markets Living the Dream Watch Out for This Myth 2-2 Integrity and the Interests of Major Stakeholders 39 55 56 58 © GUSTAVO FRAZAO/SHUTTERSTOCK.COM Chapter 1 The Entrepreneurial Life Contents Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Part Starting from Scratch or Joining an Existing Business Chapter 3 Starting a Small Business 64 64 3-1 Developing Startup Ideas 66 3-1a Types of Startup Ideas 3-1b Common Sources of Startup Ideas 66 67 3-2 Using Innovative Thinking to Generate Business Ideas 69 Living the Dream Shifting into High Gear through Diversification: Want a Latte to Go with That Bike? 71 Living the Dream A Green Startup Mushrooms into a Huge Success 74 3-3 Using Internal and External Analyses to Assess New Business Ideas 3-3a Outside-In Analysis 3-3b Inside-Out Analysis 3-3c Integrating Internal and External Analyses 74 75 78 79 3-4 Selecting Strategies That Capture Opportunities 81 3-4a Broad-Based Strategy Options 3-4b Focus Strategies 81 82 3-5 Screening New Business Ideas 84 3-6 Is Your Startup Idea Feasible? 86 3-6a Market Potential 3-6b Industry Attractiveness 3-6c New Venture Leadership Chapter 4 Franchises and Buyouts In the Spotlight: Castro Enterprises: The Innovative Franchisee 4-1 What Is a Franchise? 5-2 Dynamic Family Businesses 95 97 98 99 100 100 102 104 105 105 105 108 109 4-4 Buying an Existing Business 111 4-4a Reasons for Buying an Existing Business 4-4b Finding a Business to Buy In the Spotlight: C.F Martin & Co 95 4-2a The Pros 4-2b The Cons 4-2c The Costs of Being a Franchisee 4-3a Selecting a Franchise 4-3b Investigating the Potential Franchise 4-3c Becoming a Franchisor 4-3d Legal Issues in Franchising Chapter 5 The Family Business 5-1 What Is a Family Business? 4-2 The Pros and Cons of Franchising 4-3 Evaluating Franchise Opportunities 4-4c Investigating and Evaluating Available Businesses Living the Dream Reducing Risk or Adding Costs? 4-4d Quantitative Factors in Valuing the Business 4-4e Nonquantitative Factors in Valuing a Business 4-4f Negotiating and Closing the Deal 88 88 89 96 4-1a Franchising Terminology 4-1b The Impact of Franchising Living the Dream Dawn Lafreeda—The Dream of Business Ownership © GUSTAVO FRAZAO/SHUTTERSTOCK.COM In the Spotlight: SwipeSense 111 112 112 113 115 115 116 122 122 123 5-1a Family and Business Overlap 124 5-1b Advantages and Disadvantages of a Family Business 125 127 5-2a The Imprint of Founders on the Family Business Culture 127 127 5-2b The Commitment of Family Members 5-3 Family Roles and Relationships 129 5-3a Co-Preneurs 5-3b Mom or Dad, the Founder 5-3c Sons and Daughters 5-3d Sibling Cooperation, Sibling Rivalry Living the Dream Nature or Nurture? 5-3e In-Laws In and Out of the Business 5-3f The Entrepreneur’s Spouse 129 130 130 131 132 133 133 5-4 Good Governance in the Family Firm 134 5-4a Nonfamily Employees in a Family Firm 5-4b Family Retreats 5-4c Family Councils 5-4d Family Business Constitutions 5-5 The Process of Leadership Succession 5-5a Available Family Talent 5-5b Preparing for Succession 5-5c Transfer of Ownership Contents 134 135 136 137 137 138 139 140 v Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Part Developing the New Venture Business Plan Chapter 6 The Business Plan: Visualizing the Dream 145 In the Spotlight: Maternova 145 6-1 An Overview of the Business Plan 146 6-2 Will Writing a Plan Make a Difference? 147 6-2a The Balance Between Planning and Executing 6-2b What Form Will the Business Plan Take? 6-3 Begin with the Business Model 6-3a What Is a Business Model? 6-3b Developing a Business Model Living the Dream Changing the Business Model 148 149 150 151 151 154 6-4 Preparing a Business Plan: The Content and Format 154 6-4a Cover Page 156 6-4b Table of Contents 157 6-4c Executive Summary (Overview) 157 6-4d Company Description 158 6-4e Industry, Target Customer, and Competitor Analysis 160 6-4f Product/Service Plan 160 6-4g Marketing Plan 160 6-4h Operations and Development Plan 160 161 6-4i Management Team 6-4j Critical Risks 161 6-4k Offering 161 6-4l Exit Strategy 162 6-4m Financial Plan 162 163 6-4n Appendix of Supporting Documents Living the Dream Jania and Desmin Daniels Believe 163 in Writing a Business Plan 6-5 Advice for Writing a Business Plan 164 6-5a Analyze the Market Thoroughly 164 6-5b Provide Solid Evidence for Any Claims 164 6-5c Think Like an Investor 165 6-5d Don’t Hide Weaknesses—Identify Potential Fatal Flaws 165 166 6-5e Maintain Confidentiality 6-5f Pay Attention to Details 166 6-6 Pitching to Investors 167 6-7 Resources for Business Plan Preparation 168 6-7a Computer-Aided Business Planning 6-7b Professional Assistance in Business Planning 6-8 Keeping the Right Perspective vi 168 168 169 Chapter 7 The Marketing Plan In the Spotlight: Checkerboard Ltd.: Building a Bigger Share of a Shrinking Market 7-1 What Is Small Business Marketing? 7-1a Marketing Philosophies Make a Difference 7-1b A Consumer Orientation—The Right Choice 174 174 175 176 176 7-2 The Formal Marketing Plan 177 7-2a Market Analysis 7-2b The Competition 7-2c Marketing Strategy Living the Dream Direct Sales? 177 179 179 182 7-3 Marketing Research for the Small Business 183 7-3a The Nature of Marketing Research 7-3b Steps in the Marketing Research Process 183 184 7-4 Understanding Potential Target Markets 187 7-4a Market Segmentation and Its Variables 187 7-4b Marketing Strategies Based on Segmentation Considerations 188 7-5 Estimating Market Potential 189 7-5a The Sales Forecast 7-5b Limitations of Forecasting 7-5c The Forecasting Process 190 191 192 Chapter 8 The Organizational Plan: Teams, Legal Structures, Alliances, and Directors 197 In the Spotlight: FlexPro, uBreakiFix, and GreenCupboards 197 8-1 Building a Management Team 8-1a Achieving Balance 8-1b The Solo Startup Is Still an Option Living the Dream Taking Team Formation to Heart 8-1c Expanding Social Networks Living the Dream Entrepreneurs Get By with a Little Help from Their Network Friends 199 200 200 201 202 203 8-2 Common Legal Forms of Organization 204 8-2a The Sole Proprietorship Option 8-2b The Partnership Option 8-2c The C Corporation Option 204 206 209 8-3 Considerations in Choosing an Organizational Form 211 8-4 Specialized Legal Forms of Organization 213 8-4a The Limited Partnership 214 Contents Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 8-4b The S Corporation 8-4c The Limited Liability Company 8-4d The Professional Corporation 8-4e The Nonprofit Corporation 8-4f The B Corporation 214 214 215 215 216 8-5 Forming Strategic Alliances 216 8-5a Strategic Alliances with Large Companies 217 8-5b Strategic Alliances with Small Companies 218 8-5c Setting Up and Maintaining Successful Strategic Alliances 218 8-6 Making the Most of a Board of Directors 8-6a Selection of Directors 8-6b Contributions of Directors 8-6c Compensation of Directors 8-6d An Alternative: An Advisory Board 219 220 221 221 222 Chapter 9 The Location Plan 229 In the Spotlight: The Icebreaker 229 9-1 Locating the Brick-and-Mortar Startup 231 9-1a The Importance of the Location Decision 9-1b Key Factors in Selecting a Good Location 231 231 9-2 Designing and Equipping the Physical Facilities 237 9-2a Challenges in Designing the Physical Facilities 9-2b Challenges in Equipping the Physical Facilities 9-2c Business Image Living the Dream Hanging Out with the Right People Makes a Big Difference! 237 237 239 240 9-3 Locating the Startup in the Entrepreneur’s Home 241 9-3a The Attraction of Home-Based Businesses 9-3b The Challenges of Home-Based Businesses 241 242 9-4 E-Commerce: Locating a Startup on the Internet 243 9-4a Benefits of E-Commerce for Startups Living the Dream In the Zone or Out of Bounds? 9-4b E-Commerce Business Models 9-4c Internet-Based Businesses and the Part-Time Startup Advantage Chapter 10 Understanding a Firm’s Financial Statements 243 244 245 10-1 The Income Statement Things When It Comes to Managing Finances 10-2 The Balance Sheet 10-2a Assets 10-2b Debt and Equity 268 269 271 276 10-4 The Cash Flow Statement 276 Living The Dream Surviving Tough Times Means Effectively Managing Your Finances 10-4a Profits versus Cash Flows 10-4b Measuring a Firm’s Cash Flows 277 278 278 10-5 Evaluating a Firm’s Financial Performance 284 10-5a Liquidity (Ability to Pay Debt) 10-5b Profitability on Assets 10-5c Use of Debt Financing 10-5d Return on Owners’ Equity 285 286 287 287 Chapter 11 Forecasting Financial Requirements 295 In the Spotlight: GSM Nation: The Need to Manage Growth 295 11-1 The Purpose of Financial Forecasting 296 11-2 Forecasting Profitability 297 11-3 Forecasting Asset and Financing Requirements 301 Living the Dream Financial Planning Makes a Difference at REEcycle 11-3a Determining Asset Requirements 11-3b Determining Financing Requirements 11-4 Forecasting Cash Flows 11-4a Pro Forma Statement of Cash Flows 11-4b The Cash Budget 302 304 305 310 311 312 11-5 Use Good Judgment When Forecasting 314 Chapter 12 A Firm’s Sources of Financing 319 252 258 In the Spotlight: J&S Construction Company 258 259 Setting Up the Business Opening Day Collecting Accounts Receivable Strategic Planning for the Following Saturday The Second Saturday of Business 268 10-3 Viewing the Income Statement and Balance Sheet Together In the Spotlight: Emmy’s Organics The Lemonade Kids 263 Living the Dream The Little Things Are the Big 260 261 262 262 262 319 12-1 Firm Characteristics and Sources of Financing 320 12-1a Firm’s Economic Potential 12-1b Company Size and Maturity 12-1c Nature of Firm’s Assets 12-1d Owners’ Preferences for Debt or Equity 320 321 322 322 12-2 Debt or Equity Financing? 12-2a Potential Profitability 12-2b Financial Risk 12-2c Voting Control Contents 322 322 325 326 vii Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com 12-3 Sources of Early Financing 12-3a Personal Savings 12-3b Friends and Family 12-3c Credit Cards 12-4 Bank Financing 326 327 328 328 329 12-4a Types of Loans 12-4b Understanding a Banker’s Perspective 12-4c Selecting a Banker 12-4d Negotiating the Loan Living the Dream Able Lending 329 330 333 333 334 12-5 Business Suppliers and Asset-Based Lenders 336 12-5a Accounts Payable (Trade Credit) 12-5b Equipment Loans and Leases 12-5c Asset-Based Lending 12-6 Private Equity Investors 12-6a Business Angels 12-6b Venture Capital Firms Living the Dream “Shark Tank”: Changing the Game of Angel Investing 12-7 Crowdfunding 336 337 337 338 338 339 340 341 Living the Dream Parke New York: A Success at Crowdfunding 342 12-8 Government Loan Programs 12-8a The Small Business Administration 12-8b State and Local Government Assistance 12-8c Community-Based Financial Institutions 343 344 345 345 12-9 Where Else to Look 12-9a Large Corporations 12-9b Stock Sales 345 345 346 Chapter 13 Planning for the Harvest 351 In the Spotlight: Tapestry Medical, Inc 351 13-1 The Importance of the Harvest 353 13-2 Methods of Harvesting a Business 353 13-2a Selling the Firm 13-2b Distributing the Firm’s Cash Flows 13-2c Initial Public Offering (IPO) Living the Dream Two Friends Build and Successfully Exit Their Business 13-2d Private Equity Recapitalization 13-3 Firm Valuation and Payment Methods 13-3a The Harvest Value 13-3b The Method of Payment Living the Dream Why My Exit Strategy Failed 13-4 Developing an Effective Harvest Plan 13-4a Anticipate the Harvest 13-4b Expect Conflict—Emotional and Cultural 13-4c Get Good Advice 13-4d Understand What Motivates You 13-4e What’s Next? 353 357 358 359 360 362 362 362 363 363 364 364 365 366 366 Part Focusing on the Customer: Marketing Growth Strategies Chapter 14 Building Customer Relationships 371 In the Spotlight: The Cut and Color Room 371 14-1 What Is Customer Relationship Management? 372 14-1a Benefits of CRM to a Small Firm 14-1b Essential Materials for a CRM Program 373 374 14-2 Outstanding Customer Relationships through Extraordinary Service 14-2a Managing Customer Satisfaction Living the Dream When It Comes to Posting Online Reviews, Some Customers Can’t Yelp Themselves 14-2b Evaluating a Firm’s Customer Service Health 374 375 378 379 14-3 Using Technology to Support Customer Relationship Management 381 14-3a Creating a CRM Database 14-3b Using a CRM Database 14-3c Data Use and Privacy Concerns 383 384 385 14-4 Customers as Decision Makers viii 386 14-4a Need Recognition 14-4b Information Search and Evaluation 14-4c Purchase Decision 14-4d Post-Purchase Evaluation Living the Dream Little Brother Is Watching—But He Only Wants to Help 14-5 Understanding Psychological Influences on Customers 14-5a Needs 14-5b Perceptions 14-5c Motivations 14-5d Attitudes 386 387 388 388 389 390 390 391 391 392 14-6 Understanding Sociological Influences on Customers 392 14-6a Cultures 14-6b Social Classes 14-6c Reference Groups 14-6d Opinion Leaders 392 392 393 393 Contents Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Equipment challenges, 237–239 manufacturing equipment, 238 office equipment, 239 retailing equipment, 238–239 Equipment loan, 337 Equity debt and, trade-offs between, 322–326 financing, 322–326 owners’, 272–273, 274 return on, 287–288 Equity-based crowdfunding, 342–343 Ethical imperialism, 49 Ethical relativism, 49 Ethics Better Business Bureaus and, 53 in decision-making process, 53–55 in organizational culture, 51–52 Evaluative criteria, 388 Evoked set, 388 Exchange rates, 494, 495–496 Executive search firms, 541 Executive summary (overview), 157–158 Existing business, buying, 111–117 due diligence in, 112, 113–115 finding business to buy, 112 negotiation and closing deal, 116–117 nonquantitative factors in valuing business, 115–116 quantitative factors in valuing business, 115 reasons for, 111–112 Exit strategy, 162 Expanding markets, 482–484 Experience curve efficiencies, 484 Exporting, 489–490 F Facilities abroad features of, 487–488 locating, 493 Factoring, 337 Fair and Accurate Credit Transactions Act (FACTA), 449 Fair Credit Billing Act, 449 Fair Credit Reporting Act, 449 Fair Debt Collection Practices Act, 449 Fair Labor Standards Act (FLSA), 569 Family definition of, 124 as financing source, 328 Family and Medical Leave Act, 560 Family business, 122–143 advantages and disadvantages of, 125–126 700 business overlap, family and, 124–125 children in, 130–131 commitment of family members in, 127–129 continuity in, commitment to, 128 co-preneurs, 129–130 definition of, 123–124 dynamic, 127–129 family business constitutions and, 137 family councils and, 136 family retreats and, 135–136 fear of commitment in, 127–128 founders of, 130 good governance in, 134–137 in-laws in, 133 leadership succession in, process of, 137–143 nonfamily members in, 134–135 organizational culture in, 127 roles and relationships in, 129–134 siblings in, 131, 132–133 socioemotional wealth in, 128 spouses in, 133–134 three-circle model of family firms, 125 Family business constitution, 137 Family council, 136 Family retreat, 135–136 Fatal flaw, 86 Feasibility analysis, 86–89 definition of, 86 framework, 87 industry attractiveness, 88–89 market potential, 88 new venture leadership, 89 Financial buyers, 355–356 Financial compensation for salespeople, 467 Financial forecasting, 295–318 of asset and financial requirements, 301–310 asset requirements, 301–310 associative, 590 of cash flows, 310–314 direct, 193 indirect, 193 judgment in, 314–316 of profitability, 297–301 purpose of, 296–297 supply needs, 590 Financial incentives, 555–556 Financial leverage, 288 Financial performance, evaluating, 284–290 debt ratio, 287 liquidity, 285 return on assets, 286 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it return on equity, 287–288 understanding, 288–290 Financial plan, 162 Financial requirements determining, 305–310 forecasting, 301–310 Financial statements (accounting statements), 259–294 balance sheet, 268–276 cash flow statement, 276, 277–284 definition of, 259 financial performance, evaluating, 284–290 foundation of (lemonade kids), 259–263 income statement, 263–268 Financing accounts receivable, 610 Financing global businesses, 499–500 private banks, 499, 500 Small Business Administration, 500 Financing sources, 319–350 assets of firm, nature of, 322 bank financing, 329–336 business suppliers and asset-based lenders, 336–338 crowdfunding, 341–343 debt or equity financing, 322–326 early financing, 326–329 economic potential of firm and, 320–321 financial risk, 325–326 five C’s of credit, 331 government loan programs, 343–345 large corporations, 345 owner’s preference for debt or equity, 322 private equity investors, 338–341 sample written loan request, 332 size and maturity of firm and, 321 stock sales, 346 voting control, 326 Five C’s of credit, 331 Fixed assets (property, plant, and equipment [PPE]), 271 Flexible benefit programs (cafeteria plans), 556–557 Flexible manufacturing systems, 573 Focus strategy, 82–84 definition of, 82 drawbacks of, 84 selection and implementation, 83 Follow-the-leader pricing strategy, 440 Forecasting See Financial forecasting Foreign licensing, 491–492 Formal venture capitalists, 339–340 Founder definition of, 10 of family business, 130 as leaders, 507 Franchise, 95–110 business system for, 101 competition in, 103 cons of, 102–104 contract, 97 costs of, 104–105 definition of, 97 financial issues in, 103 financial support for, 102 impact of, 98 legal issues in, 109–110 management issues in, 104 operating plan for, 101 opportunities, 105–110 potential, investigating, 105–108 pros of, 100–102 selecting, 105 supply and purchasing power of, 102 terminology, 97–98 trade names and trademarks in, 101 training support in, 101–102 Franchise Disclosure Document (FDD), 110 Franchisee definition of, 10, 97 as information source, 108 Franchise Rule, 109 Franchisor assistance, 108–109 becoming, 108–109 definition of, 97 financial considerations, 108 as information source, 107–108 long-term value, 109 operations manual, 109 Freemium strategy, 434 Friends, as financing source, 328 Funds transfer fraud, 639 G General environment, 75 General partner, 214 General-purpose equipment, 238 Global business, 478–503 assistance for (See Global business assistance) born-global firms, 480 challenges to (See Global business challenges) cutting costs as driver of, 485, 487 expanding markets as driver of, 482–484 forces driving, 482–488 location features as driver of, 487–488 Index 701 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Global business (continued) questions to consider before going global, 481 resources as driver of, 484–485 small businesses as, 479–481 Global business assistance, 497–500 analyzing markets and planning strategy, 497 connecting with international customers, 498–499 financing, 499–500 Global business challenges, 493–497 Ease of Doing Business Index, 496–497 economic risk, 494–496 political risk, 494 Global business strategies, 488–493 exporting, 489–490 facilities abroad, locating, 493 foreign licensing, 491–492 importing, 490–491 international franchising, 492 international strategic alliances, 492–493 Globalization, 479 Government loan programs, 343–345 community-based financial institutions, 345 Small Business Administration, 344–345 state and local government assistance, 345 Government regulations Franchise Rule, 109 integrity and, 44 Graeter’s Ice Cream, 428, 677–678 Greenfield venture, 493 Green opportunities for small business, 57–58, 74 Gross fixed assets, 271 Gross profits, 264 Groupon, Andrew Mason and, 532, 685–687 Growth See also Product development decisions regarding, 401–402 factors involved in, 401–402 innovation as path to, 402–405 H Harper & Reiman, LLC, 294, 662–664 Harvesting (exiting), 351–370 definition of, 353 importance of, 353 methods of, 353–362 payment method, 362 plan for (See Harvest plan) selling the firm, 353–357 value of harvest, 362 Harvest plan, 363–367 anticipate the harvest, 364 702 expect conflict, emotional and cultural, 364–365 get good advice, 365 harvest framework, 367 life after harvest, 366, 367 understand what motivates you, 366 Headhunters, 541 Health, poor, 630–631 Health insurance, 641 Health maintenance organization (HMO), 641 Help-wanted advertising, 541–542 High-potential venture (gazelle), Home-based business, 241–243 attraction of, 241–242 challenges of, 242–243 definition of, 241 family lifestyle considerations, 241–242 financial considerations, 241 legal considerations, 243 professional image and, 242–243 HubSpot, Inc., 476, 681 Hughes Group LLC, 8–9 Human resource management (HRM), 534–564 See also Employees; Recruiting personnel co-employment agreements, 557–558 definition of, 535 employer-employee relationships, 560–561 labor unions, 560 legal protection of employees, 558–560 managers in, need for, 561 Hyperlink, 461 Hyper Wear, Inc., 173, 656 I Iaccarino & Son, 143, 654–655 Idea accumulation, in new product development, 407 Impersonal referrals, 465 Importing, 490–491 Income statement (profit and loss statement), 263–268, 276 Indemnification clause, 628 Indirect channel, 421, 422, 423 Indirect forecasting, 193 Indirect loss, 627 Industry attractiveness, 88–89 Industry environment, 75 Inelastic demand, 434 Informal venture capital, 338 Information-based model, 249 Information search and evaluation, 387–388 Information sources in purchasing, 590 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Initial public offering (IPO), 346 cost of managing, 360 definition of, 358 reasons for going public, 360 Inland marine policies, 640 In-laws in family business, 133 Innovation competitive advantage and, 402–405 entrepreneurial, 26–28 as path to growth, 402–405 startup ideas generated by, 69–73 Inside-out analysis, 78–79 Inspection, 582 Installment account, 443 Institutional advertising, 468 Insurance, 635–642 life and health insurance, 641–642 programs, 635–636 property and casualty insurance, 636–641 Intangible resources, 78 Integrity, 38–55 acting with, challenges and benefits of, 44–50 building business with, 50–55 definition of, 38–39 in doing business abroad, 47, 48 edge, 49–50 entrepreneurial, 25 ethical organizational culture and, 51–52 foundations of, 50–51 government regulations and, 44 Internet and, 46–47, 48 leading with, 51 legitimacy lies, 44–46 misconduct in workplace, 39 social responsibilities, 42–43 stakeholder interests and, 39–44 Intellectual property, 47 Interest expense, 264 Intermediaries, 421 Internal rate of return (IRR), 618 International customers, connecting with, 498–499 trade intermediaries, 499 trade leads, 498 trade missions, 498 International franchising, 492 International outsourcing, 485 International strategic alliance, 492–493 Internet coops, 586–587 integrity and, 46–47, 48 promotion using, 459–462 for recruiting personnel, 539–540 Interview, 545–547 Inventory, 270 Inventory management, 610–613 inventory to free cash, reducing, 611 monitoring inventory, 611–612 stockpiles, 612 ISO 9000, 583–584 J Jack’s Restaurant, 645, 693 Job description, 544 Job Instruction Training, 551–552 Job shops, 571 Job specification, 544 Joint and several liability, 208 Just-in-time inventory system, 576–577 K Kelly’s Delight, 6–7 Key-person life insurance, 641 Key resource requirements, 153 Kollection, The, 92, 649–651 L Labeling, 414 Labor unions, 560 Leadership See also Professional management definition of, 507 effective, 507–508 founders, 507, 511–513 integrity in, 51 new venture, 89 organizational culture and, 509–511 small business, 506–511 styles, 508–509 Leadership succession in family business, 137–143 preparing for, 139–140 talent, availability of, 138–139 transfer of ownership, 140–141 Lean production, 590 Learning effects, 484 Legal entity, 209 Legal issues in franchise, 109–110 disclosure requirements, 110 franchise contract, 110 Legal issues in home-based business, 243 Index 703 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Legal issues in product development, 417–420 consumer protection, 417 marketing asset protection, 418–420 Legal protection of employees, 558–560 Legitimacy lies, 44–46 Letter of credit, 500 Leveraged buyout (LBO), 355 Liability risks, 627–630 contractual liability, 627–628 statutory liability, 627 tort liability, 628–630 LIBOR (London InterBank Offered Rate), 333 Licensee, 491 Licensor, 491 Life and health insurance, 641–642 disability insurance, 641–642 health insurance, 641 key-person life insurance, 641 Life cycle of accounts receivable, 608–609 competitive advantage, 404 product, 405–406 Lifestyle business, Limited liability, 336 Limited liability company, 214–215 Limited partners, 214 Limited partnership, 214 Line-and-staff organization, 516 Line of credit, 307, 329 Line organization, 516 Liquidity, 285 Loan covenants, 335–336 Loan maturity rate, 335 Loan negotiation, 333–336 interest rate, 333, 334 loan covenants, 335–336 loan maturity rate, 335 repayment schedule, 335 Loan types, 329–330 line of credit, 329 mortgages, 330 term loan, 330 Local government assistance, 345 Location features of global business, 487–488 Location plan, 229–256 brick-and-mortar startup, 231–237 e-commerce, 243–252 home-based business, 241–243 physical facilities, 237–240 Lock box, 610 Long-range plan (strategic plan), 515 Long-term debt, 272 704 Long-term notes, 272 Loss avoidance, 633 Losses, 626–627 Loss prevention, 633 Loss reduction, 633 M Make-or-buy decisions, 585–586 Management See Professional management Management buyout (MBO), 356 Management consultants, 527 Management development, 550 Management team, 161 balance in, 200 definition of, 199 social networks, 202–203 solo startup, 200, 202 Manager See Professional manager Manufacturing business, operations process in, 571–572 Manufacturing defect, 630 Manufacturing equipment, 238 Market analysis, 177 coverage, channels of distribution to increase, 423 definition of, 187 potential, 88, 189–193 risk, 625 segmentation, 187–189 Marketer-initiated contacts, 465 Marketing asset protection, 418–420 copyrights, 419 patents, 419 trade dress, 420 trademarks, 418 Marketing defect, 630 Marketing mix, 177 Marketing plan, 160, 174–196 competition and, 179 distribution section of, 180–181 formal, 177–183 market analysis in, 177–179 marketing strategy in, 179–183 market potential, estimating, 189–193 pricing section of, 181 product/service section of, 180 promotion section of, 181, 183 research (See Marketing research) for small business (See Small business marketing) target markets in, 187–189 Marketing research, 183–187 definition of, 183 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it nature of, 183 steps in, 184–187 Marketing strategy, 179–183 Market potential definition of, 88 estimating, 189–193 Market segmentation definition of, 187 marketing strategies based on, 188–189 variables of, 187–188 Markup pricing, 439 Master licensee, 97–98 Matching principle, 272 Mentor, 21 Merchant middlemen, 421 Microbusiness, Microloans, Mobile devices, for social media marketing, 461 Moonworks, 668–669 Mortgage, 272, 330 Motivations See also Entrepreneurial motivations definition of, 391 in harvest plan, 366 psychological influences on customers, 391 Multibrand franchising, 98 Multiple-unit ownership, 98 Multisegment strategy, 188, 189 N Named-peril approach, 636 Need recognition, 386, 387 Needs defintion of, 390 psychological influences on customers, 390 Negotiation, 520, 521–522 Nepotism, 126 Net fixed assets, 271 Net present value (NPV), 618 Net profits, 265 Network Collie, 370, 670–674 Networking definition of, 527 in prospecting, 464–465 small business, 527, 528 Net working capital, 301 New benefit ideas, 67 New market ideas, 66 New product development process, 407–409 business analysis, 407–408 idea accumulation, 407 of physical product, 408–409 product testing, 409 New technology ideas, 66–67 New venture leadership, 89 Niche market, 28 Nondisclosure agreement, 115 Noneconomic damages, 628 Nonfamily members in family business, 134–135 Nonfinancial compensation for salespeople, 467 Nonprofit corporation, 215–216 Numi Tea, 397, 675–676 O Occupational Safety and Health Act, 559 Offering, 161–162 Office equipment, 239 Offshoring, 485 On-the-job training, 551 Open charge account, 443 Operating expenses, 264 Operating plan for franchise, 101 Operating profit margin, 286 Operating profits, 264 Operations competing with, 569 controlling, 518–519 definition of, 569 inventory management and, 573–577 plan, 160–161 process (See Operations process) quality management, 577–584 Operations and development plan, 160–161 Operations management, 567–596 capacity considerations, 572 definition of, 569 inventory management, 573–577 lean production, 591 planning, 573 purchasing policies and practices, 584–590 quality and (See Quality management) scheduling, 573 synchronous management, 591–593 Operations process, 570–573 capacity considerations, 572 in manufacturing business, 571–572 planning and scheduling, 573 in service business, 570–571 Opinion leaders, 393–394 Opportunity cost of funds, 362 Opportunity recognition, 65 Index 705 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Organizational culture definition of, 127 ethical, 51–52 in family business, 127 Organizational forms, 204–216 B corporation, 216 C corporation, 209–211 comparison of, 210 continuity of business, 212 initial requirements and costs, 211 liability of owners, 212 limited liability company, 214–215 limited partnership, 214 management control, 212–213 nonprofit corporation, 215–216 organizations in choosing, 211–213 partnership, 206–209 professional corporation, 215 raising capital, 213 S corporation, 214 sole proprietorship, 204–206 taxes, 207, 213 transferability of ownership, 212 Organizational plan, 197–226 board of directors, 219–222 management team in, 199–204 organizational forms, 204–216 strategic alliances, 216–219 Organizational structure, creating, 515–517 chain of command, 516 span of control, 517 unplanned structure, 516 Organizational test, 215 Other assets, 271 Outside-in analysis, 75–78 Outside management assistance, 525–529 educational institutions, 526–527 management consultants, 527 need for, 525 other business and professional services, 529 Small Business Administration, 526 small business networks, 527, 529 Outsourcing, 586 Owner-managed business, 124 Owners as stakeholders, 40–41 Owners’ equity, 272–273, 274 P Package policy, 639 Packaging, 413–414 Paradigm shift, 21 See also Business paradigm 706 Paradox of attraction, 84 Partially self-funded program, 635 Partnership, 206–209 agreement, 208 definition of, 206 qualifications of partners, 207 rights and duties of partners, 208 taxes, 207, 213 termination of, 208–209 Patent, 419, 420 Payback period technique, 617–618 Pearson Air Conditioning & Service, 623, 690–692 Penetration pricing strategy, 439 Percentage-of-sales technique, 304 Perception definition of, 391 psychological influences on customers, 391 Perceptual categorization, 391 Performance testing, 548–549 Peril, 626 Perpetual inventory system, 577 Personality of entrepreneurs, 23 of professional manager, 23 technician, 22, 23 Personal property, 626 Personal referrals, 465 Personal savings, 327 Personal selling, 463–467 compensation program for salespeople, 467 cost control in, 466 definition of, 464 product knowledge in, 464 sales presentation in, 464–466 successful sales techniques, 466 Personnel risks, 630–631 definition of, 630 poor health, 630–631 premature death, 630 retirement income, insufficient, 631 Philosophies in small business marketing, 176 Physical distribution (logistics), 423–424 definition of, 421 delivery terms, 424 storage and materials handling, 424 transportation, 423–424 Physical examinations, 549 Physical facilities, 237–240 business image and, 239 design challenges, 237 equipment challenges, 237–239 Physical inventory system, 577 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Physical product, development of, 408–409 Piecework, 555 Piercing the corporate veil, 212 Piggyback franchising, 98 Pitch, 167 Pivot, 67 Planning in operations, 573 Plant patents, 419 Pledged accounts receivable, 610 Poka-yoke, 582 Political risk, 494 Poor health, 630–631 PortionPac® Chemicals, 61, 647–648 Post-purchase dissonance, 388 Post-purchase evaluation, 388, 389–390 Predator/parasite conflict, 132 Preemptive right, 209 Preferred provider organization (PPO), 641 Premature death, 630 Presentation tips, 521 Prestige pricing, 435 Price, 431 Price lining strategy, 440 Price setting, 431–435 competitive advantage of firm and, 434–435 elasticity of demand, 434 starting with costs, 432–434 starting with customers, 434–435 Price skimming strategy, 440 Pricing section of marketing plan, 181 Pricing strategy, 439–441 follow-the-leader pricing strategy, 440 optional product and service pricing, 440–441 penetration pricing strategy, 439 price lining strategy, 440 price skimming strategy, 440 Pricing system, 435–439 break-even analysis, 435–439 markup pricing, 439 Primary data definition of, 185 observational methods of collecting, 185 questioning methods of collecting, 185–186 Prime rate (base rate), 333, 334 Privacy concerns, in customer database, 385–386 Private banks for financing global businesses, 499, 500 Private carriers, 424 Private equity investors, 338–341 business angels, 338–339 venture capital firms, 339–340 Private equity recapitalization, 360–362 Private placement, 346 Product, 416 Product advertising, 468 Product and trade name franchising, 97 Product development, 399–428 branding, 410–413 labeling, 414 legal environment in, 417–420 new product development process, 407–409 packaging, 413–414 strategy in, 415–417 supply chain management in, 421–424 warranties, 414 Production-oriented philosophy, 176 Product item, 415 Product life cycle, 405–406 Product line, 415 Product line pricing, 441 Product marketing, 415–416 Product mix, 415 Product mix consistency, 415 Product pricing, optional, 440–441 Product/service plan, 160 Product/service section of marketing plan, 180 Product strategy, 415–417 definition of, 415 features of, 415 options, 416, 417 product marketing vs service marketing, 415–416 Product testing, 409 Professional corporation, 215 Professional employer organizations (PEOs), 557 Professional liability policies, 640 Professional management, 505–532 entrepreneur’s responsibilities in, 515–522 in franchise, 104 outside assistance for (See Outside management assistance) process of, 511–514 small business leadership, 506–511 time management in, 522–525 Professional manager comfort zone, expanding beyond, 512 constraints, 512–513 definition of, 511 entrepreneurial responsibilities, 515–520 firm growth and managerial practices, 513–514 founders as, 507, 511–513 in human resource management, 561 personality, 23 Index 707 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Profitability, forecasting, 297–301 Profit margins, 266 Profits before taxes (taxable profits), 264–265 Pro forma financial statements balance sheet example, 308–309 of cash flows, 311–312 definition of, 162, 296 income statement example, 300 Project manufacturing, 572 Promotion definition of, 454 in marketing plan, 181, 183 Promotional mix, 455 Promotional planning, 453–476 See also Personal selling advertising practices, 468–470 budget for, 456–457 as communication, 454–456 sales, 471–473 social media for, 459–462 website for, 457–459 Property and casualty insurance, 636–641 automobile insurance, 638 business owner’s policy (BOP), 639 commercial general liability insurance, 638 crime insurance, 639 cyber liability policies, 640–641 employment practices liability policies, 639 inland marine policies, 640 professional liability policies, 640 property insurance, 637–638 umbrella liability policies, 639 workers’ compensation insurance, 638 Property insurance, 637–638 Property risks, 626–627 loss, 626–627 peril, 626 Prospecting, 464–465 Proximate cause, 629 Psychological influences on customers, 390–392 attitudes, 392 motivations, 391 needs, 390 perceptions, 391 Publicity, 473 Punitive damages, 629 Purchase decision, customer, 388 Purchase-order financing, 337 Purchasing policies and practices, 584–590 coops, 586–587 diversification of supply, 587 708 forecasting supply needs, 590 importance of purchasing, 585–587 information sources, 590 make-or-buy decisions, 585–586 outsourcing, 586 relationships with suppliers, 588 strategic alliances, 588, 590 supplier performance, measuring, 587–588 Purchasing power of franchise, 102 Pure risk, 625–631 definition of, 625 liability risks, 627–630 property risks, 626–627 Q Quality control, statistical methods of, 582–583 definition of, 578 of employees, need for, 536–538 performance, entrepreneurial, 26 Quality management, 577–584 “The Basic Seven” quality tools, 581–582 customer focus of, 578–581 ISO 9000, 583–584 quality as competitive tool, 578 quality inspection vs poka-yoke, 582 in service businesses, 584 statistical methods of quality control, 582–583 Quick response (QR) code, 462 R ReadyMade magazine, 196, 657 Real estate mortgage, 330 Real property, 626 Reasonable (prudent person) standard, 628 Recency-frequency-monetary analysis, 385 Reciprocation, 204 Recruiting personnel application forms, 545 employee referrals, 541 employment agencies, 540 employment offices, 540 entrepreneurial firms, 538–539 executive search firms, 541 help-wanted advertising, 541–542 Internet options, 539–540 interview, 545–547 performance testing, 548–549 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it physical examinations, 549 quality employees, need for, 536–538 reference and background checks, 547–548 schools, 540 temporary help agencies, 540–541 walk-ins, 541 Reference checks, 547–548 Reference groups, 393 Reliability, 548 Reluctant entrepreneur, 17 Repayment schedule, 335 Repetitive manufacturing, 572 Replacement value of property, 626 Resources, 78 Resources for global businesses, 484–485 Responsibilities entrepreneurial, 25 for small business, 40 social, 42–43 Retailer credit card, 444 Retailing equipment, 238–239 Retained earnings, 273 Retirement income, insufficient, 631 Return on assets, 286–287 Return on equity, 287–288 Revenue model, 151–153 Revolving charge account, 443–444 Revolving credit agreement, 329 Risk control, 633, 634 Risk financing, 635 Risk management, 624–645 business risk, 625 definition of, 631 insurance in, 635–642 process of, 632–633 pure risk, 625–631 risk control, 633, 634 risk financing, 635 in small business, 633–635 Risk retention, 635 Risk transfer, 635 River Pools & Spas, 596, 689 Royalties, 491 S Salary levels, 555 Sales forecast, 190–193 in break-even analysis, 438–439 definition of, 190 limitation of, 191–192 predictive variable in, 193 process of, 192–193 starting point in, 192–193 Sales-oriented philosophy, 176 Sales or marketing representatives, 466 Salespeople, compensation program for, 467 Sales presentation, 464–466 practicing, 465–466 prospecting, 464–465 Sales promotion, 471–473 coupons, 472–473 definition of, 471 publicity, 473 specialties, 471 trade show exhibits, 471–472 when to use, 473 Scheduling in operations, 573 Schools as source to recruit personnel, 540 S corporation (Subchapter S corporation), 214 Secondary data, 184–185 Second-stage entrepreneurs, 10 Segmentation variables, 188 Self-insurance, 635 Self-managed work teams, 509 Seller financing, 357 Selling the firm, 353–357 to employees, 356–357 to financial buyers, 355–356 to strategic buyers, 354–355 Serendipity, 69 Service business operations process in, 570–571 quality management in, 584 Service Corps of Retired Executives (SCORE), 526 Service mark, 413 Service marketing, 415–416 Service pricing, optional, 440–441 7(a) Loan Guaranty Program, 344 7(m) Microloan Program, 344 Short plan, 149–150 Short-range plans, 515 Short-term notes, 272 Sibling partnership, 124 Siblings in family business, 131, 132–133 Single-segment strategy, 189, 191 Small business capital budgeting in, 618–619 definition of, 4–6 entrepreneurial opportunities in, 6–9 Index 709 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Small business (continued) as global business, 479–481 leadership, 506–511 (See also Leadership) marketing, 175–177 motivations for owning, 16–24 networks, 527, 529 responsibilities for, 40 risk management in, 633–635 social responsibility and, 42–43 starting (See Startups) sustainable, 56–58 Small Business Administration (SBA) loans, 344–345 CDC 504 Loan Program, 344 for financing global businesses, 500 SBICs, 344 SBIR Program, 345 7(a) Loan Guaranty Program, 344 7(m) Microloan Program, 344 Small Business Administration (SBA) management assistance, 526 SBDCs, 526 SCORE, 526 Small business development centers (SBDCs), 526 Small Business Innovative Research (SBIR) Program, 345 Small business investment companies (SBICs), 344 Small business marketing, 175–177 consumer orientation in, 176–177 definition of, 175–176 philosophies in, 176 Social capital, 204 Social classes, 392–393 Social entrepreneurship, 12–13, 55–58 definition of, 55 sustainable small business and, 56–58 triple bottom line and, 55–56 Social media apps, 461–462 blogs, 461 definition of, 459 do’s and don’ts of social media marketing, 462 e-mail promotion, 460–461 hyperlinks, 461 mobile devices, 461 promotion using, 459–462 quick response codes, 462 reciprocal advertising, 461 social networking sites, 460 Social network definition of, 202 management team and, 202–203 710 Social networking definition of, 459 sites, for social media marketing, 460 Social responsibilities, 42–43 Socioemotional wealth, 128 Sociological influences on customers, 392–394 cultures, 392 opnion leaders, 393–394 reference groups, 393 social classes, 392–393 Software packages to support CRM, 381–382 Sole proprietorship, 204–206 definition of, 204 taxes, 213 Solo startups, 200, 202 Span of control, 517 Special-purpose equipment, 238 Specific stop loss limit, 635 Spontaneous debt financing, 306 Spouses in family business, 133–134 Stakeholders customers as, 41 definition of, 39 employees as, 41–42 integrity and interests of, 39–44 owners as, 40–41 Startup ideas, 66–92 feasibility analysis, 86–89 innovative thinking to generate, 69–73 inside-out analysis to assess, 78–79 outside-in analysis to assess, 75–78 screening, 84–86 sources of, 67–69 strategies (See Startup strategies) SWOT analysis, 79–80 types of, 66–67 Startups, 64–92 definition of, 66 ideas for (See Startup ideas) strategies (See Startup strategies) Startup strategies, 81–84 broad-based strategies, 81–82 focus strategies, 81–82 State government assistance, 345 Statistical inventory control, 575 Statutory liability, 627 Stock certificate, 209 Stockholders in C corporation, 209–211 corporate status, maintaining, 211 death or withdrawal of, 210 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it limited liability of, 210 rights and status of, 209 Stock incentives, 556 Stockpiles, 612 Stock sales, 346 Storage and materials handling, 424 Strategic alliance, 216–219 definition of, 216–217 with large companies, 217–218 with small companies, 218 successful, setting up and maintaining, 218–219 Strategic buyers, 354–355 Strategy, 81 Subcultural analysis, 392 Suppliers performance of, measuring, 587–588 relationships with, 588 strategic alliances with, 588, 590 Supply diversification of, 587 in franchise, 102 needs, forecasting, 590 Supply chain management, 421–424 channels of distribution, 421–423 definition of, 421 intermediaries, 421 physical distribution, 423–424 Supply Chain Operations Reference (SCOR) model, 587–588 Sustainable competitive advantage, 404–405 Sustainable small business, 56–58 environmentalism and, 56–57 green opportunities for, 57–58, 74 SWOT analysis, 79–80 Synchronous management, 591–593 T Table Occasions, Tangible resources, 78 Target markets in marketing plan, 187–189 Taxes, in organizational forms, 207, 213 Technician personality, 22, 23 Technology to support CRM, 381–386 Temporary help agencies, 540–541 Term loan, 330 Third-party logistics firms (3 PLs), 424 37signals, Jason Fried and hiring practices, 564, 688 Three-circle model of family firms, 125 Time management, 522–525 time pressure, 522 time savers, 522–524 Tort liability, 628–630 Torts, 628 Total asset turnover, 286 Total quality management (TQM), 578 Touch point, 383 Trade-credit agencies, 446 Trade dress, 420 Trade intermediary, 499 Trade mark, 101, 413, 418 Trade mission, 498 Tradenames, 101 Trade show exhibits, 471–472 Training and development, 550, 551–553 components of, 550 employee training, 551–552 of managerial and professional employees, 554 orientation for new personnel, 550–551 from training to implementation, 553 Training support in franchise, 101–102 Transactional relationship, 374 Transaction-based model, 250 Transfer of ownership, 140–141 Transportation, in physical distribution, 423–424 Triple bottom line, 55–56 Two-bin inventory system, 577 TWO MEN AND A TRUCK®/INTERNATIONAL, Inc., 120, 652–653 U Umbrella liability policies, 639 Underlying values, 50 Unlimited liability, 205 Unsegmented strategy (mass marketing), 188, 189 Utility patent, 419 V Validity, 548 Value, 431 Variable pricing strategy, 440 Variables, 583 Voting control, 326 W Wage and salary levels, 555 Walk-ins, in recruiting personnel, 541 Index 711 Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Warranty, 414 Website for small business, 457–459 design guidelines, 458 promoting, 459 site name, creating and registering, 457–458 user-friendly, building, 458–459 Women as entrepreneurs, 13–14 Workers’ compensation insurance, 638 Workers’ compensation legislation, 627 Workforce diversity, 542, 544 712 Working capital cycle, 270–271, 598–605 capital investments, timing and size of, 600–601 definition of, 598 working capital management, examples of, 601–605 Working capital management definition of, 598 examples of, 601–605 Z Zoning ordinances, 234 Index Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it REASONS to buy your textbooks and course materials at SAVINGS: CHOICE: CONVENIENCE: Prices up to 75% off, daily coupons, and free shipping on orders over $25 Multiple format options including textbook, eBook and eChapter rentals Anytime, anywhere access of eBooks or eChapters via mobile devices SERVICE: STUDY TOOLS: Free eBook access while your text ships, and instant access to online homework products Study tools* for your text, plus writing, research, career and job search resources * availability varies Find your course materials and start saving at: www.cengagebrain.com Source Code: 14M-AA0107 Engaged with you www.cengage.com Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it www.ebook3000.com Want to turn C’s into A’s? Obviously, right? But the right way to go about it isn’t always so obvious Go digital to get the grades MindTap’s customizable study tools and eTextbook give you everything you need all in one place Engage with your course content, enjoy the flexibility of studying anytime and anywhere, stay connected to assignment due dates and instructor notifications with the MindTap Mobile app and most of all…EARN BETTER GRADES TO GET STARTED VISIT WWW.CENGAGE.COM/STUDENTS/MINDTAP Copyright 2017 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it ... Preface W elcome to the 18th edition of Small Business Management: Launching and I didn’t realize how hard it was to run a small Growing Entrepreneurial Ventures, which conbusiness tinues to be... terms small business and entrepreneurial opportunity 1-2 Small Business and Entrepreneurial Opportunity: Is There a Difference? Let’s take a more detailed look at the terms small business and entrepreneurial. .. the 18th edition of Small Business Management offers plenty of updates, including the following: •• A host of misconceptions about becoming a small business owner can cause you to give up your entrepreneurial