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,...

Starting and Growing a Business

© 2015 McGraw­Hill Education.

CHAPTER 4 Options for Organizing Business

CHAPTER 5 Small Business, Entrepreneurship, and

Franchising

Learning Objectives

LO 5-1 Define entrepreneurship and small business.

LO 5-2 Investigate the importance of small business in the

U.S 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 Describe how you go about starting a small business

and 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”.

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

Small-Business Ownership

Independence High stress level

Costs High failure rate – 50% of all

new businesses fail within the first 5 years

Flexibility Undercapitalization – Lack of

funds to operate a business normally

Focus Managerial inexperience or

incompetence Reputation Inability to cope with growth

Advantages/Disadvantages of Small-Business Ownership

Some of the advantages

of small businesses

include:

Ø Flexibility

Ø Lowers start-up costs

Ø Ability to be your own

boss

Disadvantages…

v Entrepreneurs

experience a great deal of independence but also a

great deal of stress

v Many fail

Starting a Business

Forms of Business Ownership

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

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

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

Franchising

Standardized quality of

Centralized buying power

Site selection & territorial

protection

Greater chance for success

The Future for Small Business

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

corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative