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Chapter Six

Chapter Six. Small Business, Entrepreneurship, and Franchising. Entrepreneurship The process of creating and managing a business to achieve a desired objective. Small Business

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Chapter Six

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  1. Chapter Six Small Business, Entrepreneurship, and Franchising

  2. Entrepreneurship The process of creating and managing a business to achieve a desired objective. Small Business Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people. Entrepreneurship andSmall Business

  3. Why Do Entrepreneurs Go Into Business? 41% Joined family business 36% Wanted more control over future 27% Tired of working for someone else Wanted to fulfill longtime goal 25% Had been downsized or laid off 5% Source: Dun & Bradstreet 19th Annual Small Business Survey, May 2000 from “The Rewards,” Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50.

  4. Just What Is A Small Business? • Represents over 99.7% of all employers. • Employs 53% of the private work force. • Accounts for 47% of all sales in the U.S. • Provides 51% of the private sector output. • Represents 96% of all U.S. exporters of goods. • Receives 35% of federal contract dollars. Source: Small Business “Vital Statistics,” Small BusinessAdministration from http://www.sba.gov/aboutsba/ (accessed May 2,2001).

  5. The Role of Small Business in the American Economy • Job creation • Innovation • Exporting Fast Fact: 9.1 million women-owned businesses employ 27.5 million and contribute 3.6 trillion to the economy. 3.25 million minority-owned firms employ 4 million and account for $495 billion in revenues.

  6. Number of Firms by Employment Size Source: US Census Bureau from http://www.census.gov/epcd/smallbus.html#EmpSize (accessed July 30, 2001)

  7. Personal Independence Business Lower startup costs Greater flexibility Focus on niche markets Easier to build a good reputation What are the Advantages of Owning a Small Business? Fast Fact: 12% of Internet start-ups were launched in a garage.

  8. Disadvantages of Small Business Ownership • High stress level • High failure rate • Undercapitalization • Managerial inexperience or incompetence • Inability to cope with growth

  9. Why Do Small Businesses Fail? 39% Outside Business Conditions 28% Financing 27% Inside Business Conditions 20% Tax Problems Dispute with a Creditor 19% 17% Personal Reasons 10% Calamities Other 6% Source: Inc. State of Small Business, vol. 23 (2001), issue 7, p. 57..

  10. The Keys to Small Business Success • A comprehensive business plan • The right form of ownership • Adequate financing

  11. Equity Financing Owner’s funds Venture capitalists Debt Financing Loans & collateral Lines of credit Trade credits Barter How to Finance a Small Business Fast Fact: The online lending agency is the latest trend in debt financing. Live Capital connects borrowers to American Express, GC Capital and other lenders.

  12. Franchising • Franchise: • A license to sell another’s products or to use another’s name in business or both. • Franchiser: • The company that sells a franchise. • Franchisee: • The purchaser of a franchise.

  13. Top Ten Fastest-Growing Franchises for 2001 Fast Fact: Franchising grew by 13% in 2000. One of every 3 consumer dollars is spent in a franchise. Source: Entrepreneur’s 22nd Annual Franchise 500, January 2001 from ” http://www.Entrepreneur.com/Your_Business/YB_PrintArticle/0,2361,285156-12----00.html (accessed May 2,2001)

  14. Top Ten New Franchises for 2001 Source: “Entrepreneur’s Top Ten New Franchises for 2001,” Entrepreneur.com from http://www.entrepreneur.com/Franchise/Zone/FZ_Special_Listing/1,4731,12-12---TP-,00.html (accessed July 30, 3001)

  15. 1,500 estimated franchise systems 320,000 estimated franchise outlets 66.1% of franchisees own only 1 outlet 33.9% of franchisees own more than 1 outlet The most popular franchise types: Fast food – 18% Retail – 11% Restaurants – 9% Service – 9% Automotive – 8% Facts about Franchising Source: State of Small Business 2001, p. 34 – 35.

  16. The Marketing and Communication Tools for Small Business Success 100% E-mail address 96% Company Web site 71% Direct mail 60% Toll-free number 58% Yellow Pages ads Source: “Small businesses cite successful tools,” USA Today, November 1, 2001, p. 1b.

  17. Developing Trends Impacting Small Business • Demographic Trends • Baby boomers & Echo boomers • Technological Trends • Increase in Internet usage • Major breakthroughs in technology • Economic Trends • Economic turbulence creates economic threats AND new opportunities

  18. Solve the Dilemma • Evaluate the idea of a low-fat cookie and muffin retail store. • Are there any concerns in connection with starting a small business that Jack and Bruce have not considered? • What advice would you give Jack and Bruce as they start up their business?

  19. Explore Your Career Options What are some of the key qualities required of an individual starting a new small business?

  20. Additional Discussion Questions and Exercises • 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 small-business entrepreneur?

  21. Additional Discussion Questions and Exercises • 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?

  22. Chapter 6 Quiz 1. A license to sell another’s products or to use another’s name in business, or both, is called a. a franchise. b. a joint venture. c. a licensing agreement. d. a small business license. 2. Which of the following industries is least likely to be entered into by small-business entrepreneurs? a. services b. high technology c. mining and manufacturing d. retailing

  23. Chapter 6 Quiz 3. The shortest path to business failure is a. undercapitalization. b. lack of a business plan. c. stress. d. employee turnover 4. The money needed to finance regular business operations is called a. a line of credit. b. collateral. c. undercapitalization. d. working capital.

  24. Multiple Choice Questions about the Video 1. Which of the following classifies Artists’ Frame Service as a small business? a. It has over 120 employees. b. It is independently owned and operated. c. It is not dominant in its competitive area. d. All of the above. 2. Which of the following does Jay Goltz emphasize was his key to success? a. lack of competition b. his business plan c. his Chicago location d. his parents’ encouragement

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