© Prentice Hall, 2005Excellence in Business, Revised

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Small Business, Entrepreneurship, and

Franchises

© Prentice Hall, 2005Excellence in Business, Revised

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The Small Business• Independently owned and operated

• Not dominant in its field• Relatively small annual sales• Fewer than 500 employees

© Prentice Hall, 2005Excellence in Business, Revised

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Economic Roles of Small Business

• Provide jobs• Introduce new products• Service large corporations• Engage in specialization

© Prentice Hall, 2005Excellence in Business, Revised

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Types of Small BusinessLifestyle High-Growth

•Run by Individuals

•Limited Products/Services

•Limited Resources

•Limited Marketplace

•Run by Teams

•Multiple Products/Services

•Investment Capital

•Large Marketplace

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 6

How Entrepreneurs Spend Their Time

• Dealing with employees• Keeping records• Direct selling• Production• Maintenance• Dealing with suppliers• Arranging financial matters• Planning growth and change• Other services

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 7

Traits of Entrepreneurs• Highly disciplined• Like to control their destiny• Listen to their intuition• Relate well with others• Eager to acquire new skills• Learn from their mistakes

© Prentice Hall, 2005Excellence in Business, Revised

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Characteristics of Entrepreneurs

• Stay abreast of market changes• Willing to exploit new opportunities

• Seldom follow trends• Driven by ambition• Think positively• Prefer risk taking over security

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 9

Factors Contributing to Small Business Growth

• Technology and the Internet• Women and minorities• Downsizing and outsourcing

© Prentice Hall, 2005Excellence in Business, Revised

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Women Starting Businesses

• Entrepreneurial idea• Glass ceiling• Bored in job• Downsized• Fell into it• Family event• Born entrepreneur• Reenter workforce

© Prentice Hall, 2005Excellence in Business, Revised

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Starting a Small Business

• Starting a new business• Buying an existing business• Obtaining a franchise

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 12

Starting a New Business

+ Control your destiny

+ Reach your potential

+ Unlimited profits

+ Recognition+ Doing what you enjoy

– Uncertainty of income

– Risk of loss– Long hours & hard work

– Complete responsibility

– High stress levels

Advantages Disadvantages

© Prentice Hall, 2005Excellence in Business, Revised

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Buying an Existing Business

+ Customer base+ Business systems

+ Product or service

+ Location+ Financing

– Alienated customers

– Obsolescence– Location– Personality clashes

– Outstanding receivables

Advantages Disadvantages

© Prentice Hall, 2005Excellence in Business, Revised

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The Franchise Alternative

• Franchisee• Franchisor• Types of franchises

– Product– Manufacturing– Business-format

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 15

The Pros and Cons of Franchising

Advantages Get a viable business

Instant name recognition

Built in support group

Marketing & advertising

Disadvantages No guarantee of success

Expensive to obtain

High monthly royalties

Limited independence

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 16

How to Evaluate a Franchise

• What does the initial franchise fee cover?• How are periodic royalties calculated and when are they paid?

• Are all trademarks and names legally protected?

• Who provides and pays for advertising and promotion?

• Who selects the location of the business?

© Prentice Hall, 2005Excellence in Business, Revised

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How to Evaluate a Franchise

• Is the franchise assigned an exclusive territory?

• Does the franchisee have the right of first refusal on additional nearby franchises?

• Is the franchisee required to purchase equipment and supplies from the franchisor?

• How can the franchise agreement be terminated?

• Can the franchise be assigned to heirs?

© Prentice Hall, 2005Excellence in Business, Revised

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Importance of a Business Plan

• Guides company operations• Outlines a strategy • Attracts lenders and investors

© Prentice Hall, 2005Excellence in Business, Revised

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A Formal Business Plan

• Summary• Mission and objectives• Company and industry• Products or services• Market and competition• Management• Marketing strategy

© Prentice Hall, 2005Excellence in Business, Revised

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A Formal Business Plan

• Design and development plans• Operations plan• Overall schedule• Critical risks and problems• Financial forecasts and requirements

• Exit strategy

© Prentice Hall, 2005Excellence in Business, Revised

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Why New Businesses Fail•Management Incompetence

•Lack of Industry Experience

•Inadequate Financing

•Poor Business Planning

•Unworkable Goals

•Diminished Customer Base

•Uncontrolled Growth

•Inappropriate Location

•Poor System of Controls

•Lack of Entrepreneurial Skills

© Prentice Hall, 2005Excellence in Business, Revised

EditionChapter 5 - 22

Sources of Small Business Assistance

• SCORE• Incubators• The Internet• Small Business Administration

© Prentice Hall, 2005Excellence in Business, Revised

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Private Sources of Financing

• Friends and family• Commercial lenders• Corporate financing• Venture capitalists• Angel investors• Credit cards