Lecture Business: A changing world - Chapter 6: Small business, entrepreneurship, and franchising

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,...

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Chapter Six

Small Business, Entrepreneurship, and Franchising

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• 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

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# of Firms by Employment Size

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Source: Small Business Answer Card 1998, Small BusinessAdministration Office of Advocacy, http://www.sba.gov/ADVO/stats/answer.html, August 23, 1998. 

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Top Five Small Business Industries

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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

Industry Employment in Firms with 0­499 employees Small Businesses (%)

Advantages of Small  Business Ownership

• Personal

– independence

• Business

– startup costs – flexibility – focus

– reputation

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Disadvantages of Small  Business Ownership

• High stress level

• High failure rate

• Undercapitalization

• Managerial inexperience or  incompetence

• Inability to cope with growth

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Managerial inexperience or incompetence Inability to cope with growth

1 to 2 years 50%

5 or more years 33%

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• Equity financing

– owner’s funds – venture capitalists

• Debt financing

– loans – lines of credit – trade credits

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9. Holiday Inns Worldwide        3,176 

10. Jani­King        8,685  

Wraps Rotisserie chicken Frozen Deserts Bagels

Health care businesses Cosmetics companies Video game franchises Video rental stores Soup bars

Golf Women's golf

Internet Use

• 78% of Canadian SME’s use the  internet

• Online activity by SME’s in 2001  equaled $2 billion

c What advice would you give Jack and Bruce 

as they start up their business?

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What are some of the key qualities  required of an individual starting a new  small business?

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Additional Discussion  Questions and Exercises

1 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?

2 What should be included in a business plan? What is  the importance of a business plan to the small­business  entrepreneur?

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Additional Discussion  Questions and Exercises

3 What are the goals of venture capitalists when they invest 

  in new businesses?

4 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?

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