This chapter surveys the world of entrepreneurship and small business. After reading this chapter, you will be able to: Define and examine the advantages and disadvantages of the sole proprietorship form of organization, identify three types of partnership and evaluate the advantages and disadvantages of the partnership form of organization, describe the corporate form of organization and cite the advantages and disadvantages of corporations,...
Chapter Six Small Business, Entrepreneurship, and Franchising © 2003 McGrawHill Ryerson Limited Entrepreneurship and Small Business Entrepreneurship 6-1 The process of creating and managing a business to achieve a desired objective Small Business Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people © 2003 McGrawHill Ryerson Limited Small Business • Represents 97.3% of business establishments • Created more than 80% of all new jobs in fiscal 1996 97 • Accounted for 50% of GDP in 1999 • Provided over half of the employment in Canada in 1999 6-2 © 2003 McGrawHill Ryerson Limited Source: Small Business Answer Card 1998, Small Business Administration Office of Advocacy, http://www.sba.gov/ ADVO/stats/answer.html, August 23, 1998. The Role of Small Business in the Canadian Economy 6-3 Jobcreation Innovation â2003McGrawưHillRyersonLimited #ofFirmsby EmploymentSize 6-4 Firm Size 0 – 4 employees Number of Firms Percentage of (thousands) all Firms 1,587 78.4% 5 – 49 employees 383 18.9% 50 99 employees 31 1.5% 100+ 24 1.2% 2,025 100% All size firms © 2003 McGrawHill Ryerson Limited Source: Small Business Answer Card 1998, Small Business Administration Office of Advocacy, http://www.sba.gov/ ADVO/stats/answer.html, August 23, 1998. Establishments by Industry ALL INDUSTRIES No. of employees a GOODS PRODUCING SECTOR SERVICE PRODUCING SECTOR 0 – 4 5 49 PRIMARY INDUSTRIES CONSTRUCTION 50 99 MANUFACTURING 100 + WHOLESALE TRADE RETAIL TRADE FINANCE, INS. & RE BUS & PERSONAL SERVICES 20 % 40 % © 2003 McGrawHill Ryerson Limited 60 % 80 % 100 % Top Five Small Business Industries 6-6 Employment in Firms with 0499 employees Small Businesses (%) Industry Eating and drinking places 4,625,040 65.9% Health services 4,385,299 40.8% Business services 3,191,279 50.1% Special trade contractors 2,682,009 93.2% Wholesale trade–durable goods 2,643,265 71.4% © 2003 McGrawHill Ryerson Limited Source: 1997 Small Business Profile, Small Business Administration Office of Advocacy, “Small Business: Backbone of the United States Economy,” http://www.sba.gov/ADVO/stats/profiles/97us.html, September 30, 1998 Advantages of Small Business Ownership • Personal 6-7 – independence • Business – – – – startup costs flexibility focus reputation © 2003 McGrawHill Ryerson Limited Disadvantages of Small Business Ownership • • • • High stress level High failure rate Undercapitalization Managerial inexperience or incompetence • Inability to cope with growth 6-8 © 2003 McGrawHill Ryerson Limited Roads to Success or Paths to Failure Success 6-9 Failure Undercapitalization Flexibility Managerial inexperience or incompetence Focus Inability to cope with growth Reputation © 2003 McGrawHill Ryerson Limited Small Business Life Expectancy 6-10 Less than 1 year 1 to 2 years 5 or more years © 2003 McGrawHill Ryerson Limited Percentage of firms 33% 50% 33% Financial Resources 6-11 • Equity financing – owner’s funds – venture capitalists • Debt financing – loans – lines of credit – trade credits © 2003 McGrawHill Ryerson Limited Top Ten Franchises Top Franchises 1. Subway Number of outlets* 15,248 2. Jackson Hewitt Tax Service 3,344 6-12 3. Curves for Women 2,412 4. 7Eleven 21,142 5. Yogen Fruz Worldwide 5,228 6. Quizno’s Franchise Co., The 1,270 7. McDonald’s 28,236 8. Management Recruiters/Sales Consult.MRI Worldwide 1,360 9. Holiday Inns Worldwide 3,176 10. JaniKing 8,685 © 2003 McGrawHill Ryerson Limited Source: Entrepreneur’s Franchise 500 For 2002 as reported Feb. 25,2002 at http://www.entrepreneurmag.com/Franchise_Zone Top 10 FastestGrowing Franchises for 2002 Growth during 2001 10 Kumon Math & Reading Centers 7Eleven Inc Curves for Women Coverall North America Inc Subway JaniKing Jackson Hewitt Tax Service KFC Corp McDonald’s Budget Rent A Car Corp © 2003 McGrawHill Ryerson Limited 2,259 1,654 555 1,675 1,356 681 483 996 895 97 Source:www.entrepreneurmag.com/Franchise_Zone Franchising Trends In 6-13 Out Wraps Rotisserie chicken Frozen Deserts Bagels Health care businesses Cosmetics companies Video game franchises Video rental stores Soup bars Hot Golf © 2003 McGrawHill Ryerson Limited Hotter Women's golf Source: Janean Chun, “Get A Clue,” Entrepreneur,January 1998 Reprinted with permission from Entrepreneur Magazine 6-14 Hertz operates a franchise organization as do many other rental car companies © 2003 McGrawHill Ryerson Limited Small Business and Internet Use Likelihood of Using the Internet 6-15 San Francisco Very or Somewhat New York Likely Very or Somewhat Unlikely Neutral Chicago Total 10 © 2003 McGrawHill Ryerson Limited 20 Percent 30 40 50 60 Source: “How Likely Are Small Business to Byte?,” Business Week, May 25, 1998, p. 8 Small Business and Internet Use • 78% of Canadian SME’s use the internet • Online activity by SME’s in 2001 equaled $2 billion © 2003 McGrawHill Ryerson Limited Solve the Dilemma 6-16 a Evaluate the idea of a lowfat cookie and muffin retail store b Are there any concerns in connection with starting a small business that Jack and Bruce have not considered? c What advice would you give Jack and Bruce as they start up their business? © 2003 McGrawHill Ryerson Limited Explore Your Career Options 6-17 What are some of the key qualities required of an individual starting a new small business? © 2003 McGrawHill Ryerson Limited Additional Discussion Questions and Exercises 6-18a Assume you wanted to go into business for yourself. What kind of business would you prefer? What would be the financial requirements for entering the business? What type of work or managerial experience would you need? What should be included in a business plan? What is the importance of a business plan to the smallbusiness entrepreneur? © 2003 McGrawHill Ryerson Limited Additional Discussion Questions and Exercises 6-18b What are the goals of venture capitalists when they invest in new businesses? Think of your local community. Can you name five new businesses that have started up recently? Would you consider these new businesses to be small businesses? Are these new businesses franchises? © 2003 McGrawHill Ryerson Limited Chapter 6 Quiz 6-19a A license to sell another’s products or to use another’s name in business, or both, is called a a franchise b a joint venture c a licensing agreement d a small business license Which of the following industries is least likely to be entered into by small business entrepreneurs? a services b high technology c. mining and manufacturing d retailing © 2003 McGrawHill Ryerson Limited Chapter 6 Quiz 6-19b The shortest path to business failure is a undercapitalization b lack of a business plan c stress d employee turnover The money needed to finance regular business operations is called a a line of credit b collateral c undercapitalization d working capital © 2003 McGrawHill Ryerson Limited ... a Evaluate the idea of a lowfat cookie and muffin retail store b Are there any concerns in connection with starting a small business that Jack and Bruce have not considered? c What advice would you give Jack and Bruce ...Entrepreneurship and Small Business Entrepreneurship 6-1 The process of creating and managing a business to achieve a desired objective Small Business Any independently owned and operated business that is not dominant in its competitive area and ... Hertz operates a franchise organization as do many other rental car companies © 2003 McGrawHill Ryerson Limited Small Business and Internet Use Likelihood of Using the Internet 6-1 5 San Francisco