Business Essentials, 7 th Edition Ebert/Griffin

1. Entrepreneurship, New Ventures, and Business Ownership Business Essentials, 7th EditionEbert/Griffin Instructor Lecture PowerPoints PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College © 2009 Pearson Education, Inc.

2. What Is a “Small” Business? • Small Business Defined • A business that is independent (not part of a larger business) and that has relatively little influence in its market. • The Importance of Small Business in the U.S. Economy • Job creation • Innovation • Contributions to big business • Suppliers of specialized services and raw materials • Sellers of larger firms’ products © 2009 Pearson Education, Inc.

3. FIGURE 3.2: Small Business by Industry © 2009 Pearson Education, Inc.

4. Entrepreneurship • Entrepreneurship • The process of seeking business opportunities under conditions of risk • Entrepreneur • One who accepts the risks and opportunities of creating, operating and growing a new business • Small Business Owner • A person who independently owns a business that has relatively little impact in its market © 2009 Pearson Education, Inc.

5. Entrepreneurial Characteristics • Successful Entrepreneurs: • Are resourceful. • Are concerned about good customer relations. • Desire to be their own boss. • Can deal with uncertainty and risk. • Are open-minded. • Rely on networks, business plans, and consensus. • Have different views on how to succeed, to automate a business, and when to rely on experience or business acumen. © 2009 Pearson Education, Inc.

6. Starting and Operating a New Business • Crafting a Business Plan • Conveys a description of the business strategy for the new venture and how it will be implemented • A business plan should address: • The entrepreneur’s goals and objectives • The strategies that will be used to obtain them • The implementation of the chosen strategies • Preparing a Business Plan • Setting goals and objectives • Sales forecasting • Financial planning © 2009 Pearson Education, Inc.

7. Starting the Small Business • Buying an Existing Business • Less risk in purchasing ongoing, viable business • Franchising • Advantages • Proven business opportunity for franchisee • Access to management expertise of franchisor • Disadvantages • Start-up costs for franchise purchase • Ongoing payments to the franchisor • Management rules and restrictions on the franchisee © 2009 Pearson Education, Inc.

8. Starting the Small Business (cont’d) • Starting from Scratch • Disadvantage: Higher risk of business failure • Advantage: Avoids problems of an existing business • Questions to Be Answered: • Who and where are my customers? • How much will those customers pay for my product? • How much of my product can I expect to sell? • Who are my competitors? • Why will customers buy my product rather than the product of my competitors? © 2009 Pearson Education, Inc.

9. Financing the Small Business • Personal Resources • Loans from Family and Friends • Bank Loans • Venture Capital Companies • Small-Business Investment Companies (SBICs) • Minority Enterprise Small-Business Investment Companies (MESBICs) • SBA Financial Programs • Guaranteed loans and immediate loan programs • Management advice (SCORE and SBDCs) © 2009 Pearson Education, Inc.

10. Trends in Small-Business Startups Emergence of E-commerce Crossovers from Big Business Opportunities for Minorities & Women Global Opportunities Better Survival Rates © 2009 Pearson Education, Inc.

11. Reasons for Failure and Success • Failure • Poor management • Neglect • Weak control systems • Insufficient capital • Success • Hard work, drive, and dedication • Market demand • Managerial competence • Luck!!! © 2009 Pearson Education, Inc.

12. Business Ownership • Forms of Legal Ownership • Sole proprietorship: Owned and operated by one person • Partnership: Sole proprietorship multiplied by the number of partner-owners • Corporation • Choice of Ownership Form • Based on the entrepreneur’s needs/desires for control, ownership participation, financing sources, and appropriateness of the chosen form for the industry in which the firm will compete © 2009 Pearson Education, Inc.

13. Advantages: Freedom Simple to form Low start-up costs Tax benefits Formation of cooperatives Disadvantages: Unlimited liability: Owners are responsible for all debts of a business Limited resources Limited fundraising capability Lack of continuity Sole Proprietorships © 2009 Pearson Education, Inc.

14. Advantages: More talent and money More fundraising capability Relatively easy to form Limited liability for limited partners Tax benefits Disadvantages: Unlimited liability for general partner Disagreements among partners Lack of continuity Partnerships © 2009 Pearson Education, Inc.

15. Alternatives to General Partnerships • Limited Partnership • Allows for limited partners who invest money but are liable for debts only to the extent of their investments • Must have at least one general (or active) partner, who is usually the person who runs the business and is responsible for its survival and growth • Master Limited Partnership • Organization sells shares (partnership interests) to investors on public exchange. Investors are paid back from profits • The master partner retains at least 50 percent ownership and runs the business, while minority partners have no management voice © 2009 Pearson Education, Inc.

16. Cooperatives • Combine the freedom of sole proprietorships with the financial power of corporations • Groups of sole proprietorships or partnerships agree to work together for their common benefit © 2009 Pearson Education, Inc.

17. Corporations • Corporation • Firms that have filed papers of incorporation • Corporations may: • Be small or large • Sue and be sued • Buy, hold, and sell property • Make and sell products • Commit crimes and be tried and punished for them • Have limited liability for individuals who form them © 2009 Pearson Education, Inc.

18. Advantages: Limited liability: The owners’ responsibility for the debts of a business is limited to their investment in a business Continuity Stronger fundraising capability Disadvantages: Double taxation of dividends Fluid control Complicated and expensive to form Corporations © 2009 Pearson Education, Inc.

19. Types of Corporations • Closely Held (Private) Corporation • Publicly Held (Public) Corporation • Subchapter S Corporation • Limited Liability Corporation (LLC) • Professional Corporation • Multinational (Transnational) Corporation © 2009 Pearson Education, Inc.

20. Managing a Corporation • Corporate Governance • The roles of shareholders, directors, and other managers in corporate decision making and accountability • Corporate governance is established by the firm’s bylaws and involves three bodies: • Stockholders (shareholders): Investors who buy ownership shares in the form of stock • The board of directors: Group elected by stockholders to oversee corporate management • Corporateofficers: Top managers hired by the board to run the corporation © 2009 Pearson Education, Inc.

21. Stockholders: Owners of Corporations • Stock: A share of ownership in a corporation • Dividends: Profits distributed among stockholders © 2009 Pearson Education, Inc.

22. Special Issues in Corporate Ownership • Joint Ventures and Strategic Alliances: • Strategic alliance: Two or more organizations collaborate on a project for mutual gain • Joint venture: Partners share ownership of a new enterprise • Employee Stock Ownership Plans • Allows employees to own a share of the corporation through trusts established on their behalf • Institutional Investors • Control enormous resources and can buy huge blocks of stock © 2009 Pearson Education, Inc.

23. Special Issues in Corporate Ownership (cont’d) • Mergers, Acquisitions, Divestitures, and Spin-Offs: • Merger: Two firms combine to create a new company • Acquisition: One firm buys another outright • Divestiture: Strategy whereby a firm sells one or more of its business units • Spin-off: A firm sells part of itself to raise capital © 2009 Pearson Education, Inc.