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Chapter Six Small Business, Entrepreneurship, and Franchises Small Business: Defined A business that is independently owned and operated for profit & not dominant in its field Accounts for 99.7% of all U.S. businesses SBA “smallness” guidelines Manufacturing—a maximum of 500 employees

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chapter six

Chapter Six

Small Business, Entrepreneurship, and Franchises

small business defined
Small Business: Defined
  • A business that is independently owned and operated for profit & not dominant in its field
  • Accounts for 99.7% of all U.S. businesses
  • SBA “smallness” guidelines
    • Manufacturing—a maximum of 500 employees
    • Wholesaling—a maximum of 100 employees
    • Retailing—maximum annual sales of $6.5 million
    • Agriculture—maximum annual sales of $.75 million
the small business sector
The Small-Business Sector
  • There are 23 million businesses in the U.S.
  • Only 17,000 employ over 500 workers
  • In the last decade, # of small businesses increased by 49%
  • Part-time entrepreneurs have increase fivefold and account for one-third of all small businesses
  • Small businesses provide over 50% of the jobs in the U.S.
  • Over 70% of new business fail within their first 5 years


why small businesses fail
Why Small Businesses Fail
  • Lack of capital
  • Cash-flow problems
  • Lack of management skills
  • Overexpansion
developing a business plan
Developing a Business Plan
  • A carefully constructed guide for the person starting a business

-Accuracy and realistic expectations are crucial

Need to include:

Description of the goods or services to be offered

Detailed estimate of potential customers

Current competitors

Facilities and labor force needed

Financing and cash flow required

Marketing strategy

Exit Strategy-go public, sell out, dissolve

the small business administration
The Small Business Administration

A governmental agency that assists, counsels, and protects the interests of small business in the U.S

  • Types of SBA management assistance
    • Management courses and workshops
    • Service Core of Retired Executives (SCORE)
    • SBA publications
importance of small business to economy
Importance of Small Business to Economy

1) Providing employment

  • hire a larger proportion of younger workers, older workers, women, and part-time workers
  • provide 67% of workers with their first job and initial job skills
  • provide 2/3 of the new jobs added to the economy
importance of small business
Importance of Small Business

2) Providing technological innovation

  • Innovation among small-business workers is higher than among workers in big business
  • More than half of the major technological advances of the 20th century originated with individual inventors and small businesses
importance of small business to economy9
Importance of Small Business to Economy

3) Providing competition

  • Satisfy niche markets, forcing larger firms to become more responsive to customer needs

4) Filling needs of society & other businesses

  • meet the special needs of smaller customers
  • act as specialized suppliers of goods and services to larger businesses
the pro and cons of smallness

Personal relationships with customers and employees

Ability to adapt to change


Keeping all profits

Ease and low cost of going into business

Keeping business information secret


Risk of failure

Limited potential

Limited ability to raise capital

The Pro and Cons of Smallness
  • Franchise
    • A license to operate an individually owned business as though it were part of a chain of outlets or stores
  • Franchisor
    • An individual or organization granting the franchise (Avon Corp)
  • Franchisee
    • A person or organization purchasing a franchise (Avon lady in your neighborhood)
types of franchises
Types of Franchises
  • Product and trade name-
  • Dealer sells product provided by the franchisor, but can use any sales tactics he chooses ex-Michelin Tires
  • Business Format-
  • Dealer must sell the product in the exact way the franchisor prescribes ex-Mc Donalds
entrepreneur s top ten franchises in 2006
Entrepreneur’s Top Ten Franchises in 2006
  • Subway
  • Quiznos Sub
  • Curves
  • UPS Store, The
  • Jackson Hewitt Tax Service
  • Dunkin' Donuts
  • Jani-King
  • RE/MAX Int'l. Inc.
  • 7-Eleven Inc.
  • Liberty Tax Service

For updates:

advantages of franchising

Fast and well controlled distribution of its products

No need to construct and operate its own outlets

More working capital available for expanded production and advertising

Franchising agreements maintain product and quality standards

Motivated work force of franchisees because they see themselves as owners

Advantages of Franchising
advantages of franchising15
Advantages of Franchising


  • Opportunity to start a proven business with limited capital
  • Guaranteed customers
  • Franchisor available for advice and guidance
  • Materials for local promotional campaigns and participation in national campaigns
  • Cost savings when purchasing supplies in cooperation with other franchisees
disadvantages of franchising

Failure of the franchisee to operate franchise as agreed

Disputes with franchisees over the terms of the franchise (flat or % royalty, sphere of influence)

Disadvantages of Franchising
disadvantages of franchising17
Disadvantages of Franchising


  • Franchisor retains a large amount of control over the franchisee’s activities
  • Franchisor or other franchisees opening competing outlets within the franchisee’s market