Lecture Business (4/e): Chapter 5 - Ferrell, Hirt, Ferrell

Chapter 5 - Small business, entrepreneurship, and franchising. This chapter include objectives: Define entrepreneurship and small business, investigate the importance of small business in the U.S. economy and why certain fields attract small business, specify the advantages of small-business ownership, summarize the disadvantages of small-business ownership and analyze why many small businesses fail,...

Part Starting and Growing a Business © 2015 McGraw­Hill Education 5-2   CHAPTER Options for Organizing Business CHAPTER Small Business, Entrepreneurship, and Franchising 5-3 Learning Objectives LO 5-1 Define entrepreneurship and small business LO 5-2 U.S Investigate the importance of small business in the economy and why certain fields attract small business LO 5-3 Specify the advantages of small-business ownership LO 5-4 Summarize the disadvantages of small-business ownership, and analyze why many small businesses fail LO 5-5 and Describe how you go about starting a small business what resources are needed LO 5-6 Evaluate the demographic, technological, and economic trends that are affecting the future of small business LO 5-7 Explain why many large businesses are trying to “think small” 5-4 What Is a Small Business? Small Business • Any independently owned and operated business that is not dominant in its competitive area Small Business Administration (SBA) • An independent agency of the federal government that offers managerial and financial assistance to small businesses 5-5 Small-Business Ownership Advantages Disadvantages Independence High stress level Costs High failure rate – 50% of all new businesses fail within the first years Flexibility Undercapitalization – Lack of funds to operate a business normally Focus Managerial inexperience or incompetence Reputation Inability to cope with growth 5-6 Advantages/Disadvantages of Small-Business Ownership Some of the advantages of small businesses include: Ø Flexibility Ø Lowers start-up costs Ø Disadvantages… v Entrepreneurs experience a great deal of independence but also a great deal of stress v Many fail Ability to be your own boss 5-7 Starting a Business 5-8 Forms of Business Ownership 5-9 Equity Financing Referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business The owner may bring useful personal assets (such as a computer, desks, and other furniture, a car or truck) as part of his or her ownership interest in the firm 5-10 Venture Capitalists v Although this form of equity financing has helped many small businesses, they require that the small-business owner share the profits of the business (and sometimes the control, as well) with the investors 5-11 Starting from Scratch vs Buying an Existing Business § Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business 5-12 Franchising 5-13 Franchises Advantages Disadvantages Training & support Fees and profit sharing Brand-name appeal Standardized operations Standardized quality of goods & services Restrictions on purchasing National advertising Limited product line Financial assistance Possible market saturation Proven products Less freedom in decisions Centralized buying power Site selection & territorial protection Greater chance for success 5-14 The Future for Small Business 5-15 Making Big Businesses Act “Small” The continuing success and competitiveness of small businesses through rapidly changing conditions in the business world have led many large corporations to take a closer look at what their smaller rivals tick Ø Ø Large firms emulate smaller ones to improve their bottom line Downsizing (rightsizing) – To reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative .. . 5- 2   CHAPTER Options for Organizing Business CHAPTER Small Business, Entrepreneurship, and Franchising 5- 3 Learning Objectives LO 5- 1 Define entrepreneurship and small business LO 5- 2 U.S... of small business in the economy and why certain fields attract small business LO 5- 3 Specify the advantages of small -business ownership LO 5- 4 Summarize the disadvantages of small -business ownership,... future of small business LO 5- 7 Explain why many large businesses are trying to “think small”  5- 4 What Is a Small Business? Small Business • Any independently owned and operated business that