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Structuring Contemporary Business

Chapter 5. Structuring Contemporary Business. Learning Goals. Distinguish between small and large businesses and identify common industries for small firms. Discuss the economic and social contributions of small business. Explain why small businesses fail.

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Structuring Contemporary Business

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  1. Chapter 5 Structuring Contemporary Business

  2. Learning Goals Distinguish between small and large businesses and identify common industries for small firms. Discuss the economic and social contributions of small business. Explain why small businesses fail. Describe how the Small Business Administration assists small-business owners. Explain franchising benefits for franchisors and franchisees. 1 Summarize the forms of business ownership and the advantages and disadvantages of each form. Identify the levels of corporate management. Describe recent trends in mergers and acquisitions. Differentiate among private, public, and collective ownership. 6 2 7 3 8 4 9 5

  3. Most Businesses are Small Businesses • 90% of firms with employees have fewer than 20 people on staff. • 98% have fewer than 100 employees. • More than 20 million people in the United States earn business income without employees. • Almost ½ the sales in the United States are made by small business. • Small businesses generate 60% - 80% of new jobs over the last decade. • Launching pad for entrepreneurs and prevalence of minorities.

  4. What is Small Business? • The Small Business Administration defines a small business to be a firm that is independently owned and operated and is not dominant in the field. • Manufacturing business: fewer than 500 workers • Wholesalers: fewer than 100 workers • Retailers: less than $6 million in annual sales • Agricultural business: less than $750,000 • Small Businesses size ranges from $500,000 to $25 million in sales and from 100 to 1,500 employees.

  5. What is Small Business? • In Bangladesh: • Manufacturing enterprise: • Small enterprise: an enterprise would be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services etc, excluding land and building, are to up to Tk. 15 million(1.5 crore) • Medium enterprise: up to Tk. 100 million. (10 crore) • Non-manufacturing enterprise: • Small enterprise: an enterprise should be treated as small if it has less than 25 workers, in full-time equivalents • Medium enterprise: an enterprise should be treated as small if it has between 25 and 100 employees. (Source: www.smef.org.bd) SME Foundation, Ministry of Industries, Bangladesh

  6. Typical Small-Business Ventures

  7. Major Industries Dominated by Small Business

  8. Contributions of Small Business • Creating New Jobs • Creating New Industries • Innovation

  9. Small Business Failure • 1 in 3 businesses closes permanently within two years. • 50% of businesses fail after four years. • More than 60% of business fail within six years. • By the 10-year mark, 82% of all small businesses have closed permanently.

  10. Reasons Why Small Businesses Fail • Management Shortcomings • Inadequate Financing • Government Regulation

  11. Sources of Small Business Financing

  12. Increasing the Likelihood of Small Business Success • Creating a Business Plan • Written documentation that provides orderly statement of goals, methods, and purpose. • Small Business Administration • Government agency concerned with helping small business firms.

  13. Small Business Administration • Financial Assistance • Loan Guarantees • Microloans • Small Business Investment Companies (SBICs) • Active Capital

  14. Other Specialized Assistance • Set-aside Programs • Government Contracts (over 23%) • 5% for women and minorities • Business Incubators • Local community initiatives to share resources for small start-ups • The University of Tennessee

  15. Opportunities for Women & Minorities • More than 50% of U.S. businesses are owned by women • The number of businesses owned by minorities outpaced the growth in the number of U.S. businesses overall • Women and minorities still face challenges • Smaller scale operations • Challenges finding investors • Access to capital

  16. Minority Owned Businesses

  17. The Franchising Alternative A contractual business agreement between a manufacturer or another supplier and a dealer to produce and market the supplier’s good or service.

  18. The Franchising Agreement • 50% of all retail sales • 760,000 businesses • 18 million jobs • $500 billion in payroll • 1 out of 12 businesses is a franchise • Franchising overseas is a growing trend • Franchising agreements exist between the franchisee and franchisor. • Franchisee: individual & business firm purchasing the franchise. (dealer) • Franchisor: who contracts to sell the goods & service. (supplier or manufacturer) The franchisor provides building plans, site selection, managerial and accounting systems, name recognition, materials, equipment & training and other services to assist the franchisee. (ex-McDonald’s)

  19. Advantages Prior Performance Record Recognizable Company Name Prove Business Model Tested Management program Disadvantages Franchise Fees Future Payments Linked to Reputation and Management Franchise Agreement Restrictions Benefits and Problems of Franchising

  20. Alternatives for Organizing A Business

  21. Forms of Private Ownership

  22. Legal Structures to Meet Changing Needs • Financial Situation • Management Skills and Limitations • Management Styles and Capabilities • Exposure to Liability Before deciding on an appropriate legal form, someone planning to form a new business considers these factors:

  23. Types of Corporations • Domestic Corporation • Foreign Corporation • Alien Corporation (Large corporations operating worldwide may operate under all three of these designations) • Employee-Owned Corporations • Not-for-Profit Corporations

  24. Corporate Management • Stockholders – acquire stocks in exchange for ownership. • Preferred Stock • Common Stock • Board of Directors – elected by stockholders to oversee corporation. • Corporate Officers & Management – make major corporate decisions and handle ongoing operations.

  25. When Businesses Join Forces • Mergers and Acquisitions (M&A): Merger - combination of two or more firms to form one company. • Vertical (combine firms operation at different levels in production & marketing process- manufacturer & retailer) • Horizontal (same industry- Ford & Tata) • Conglomerate (unrelated firms- different Industries) Acquisition - procedure in which one firm purchases the property and assumes the obligations of another. Ex- Sony Corporation’s (Japanese company) full acquisition of Sony Ericsson (2012) • Joint Ventures:partnership between companies for a specific purpose. Ex- Sony Ericsson (2001) (Sony Mobile Communications and the Swedish telecommunications equipment company Ericsson)

  26. Public and Collective Ownership Public Ownership– a unit or agency of government owns and operates an organization. Parking structures, water systems, turnpike authority (Ex-The New Jersey Turnpike Authority (NJTA) is a state agency responsible for maintaining the New Jersey Turnpike and the Garden State Parkway, which are two important roads for moving traffic across New Jersey) Customer-Owned Businesses– collective ownership of a production, storage, transportation or marketing organization is a cooperative. Customers can earn a share of the profits in proportion to purchases through The Co-operative Membership scheme. (Ex- The Co-operative Food, UK)

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