Entrepreneurship &

Small Business Management

04/19/23

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Characteristics of entrepreneurs Entrepreneur – someone who takes a risk in starting a business

to earn a profit

Key factors: Desire to be your own boss Develop a good initial plan Coming up with innovative ideas

Entrepreneurship Processes of starting, organizing, managing, & assuming the

responsibility for a business

What does it take? Confidence & capability to turn an idea into a business Important to have an understanding of business operations and

management

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Personal characteristics of successful entrepreneursEntrepreneurs are more They have

Persistent Problem-solving skills

Inquisitive Tolerance for ambiguity

Energetic Strong integrity

Goal oriented Personal initiative

Independent Ability to secure resources

Self-confident Capability to learn from failure

Creative Willingness to work hard

Reliable

Competitive

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Entrepreneurship & the economy Nearly one in ten Americans are involved in some

type of entrepreneurship activity.

More than 670,000 new businesses are created annually.

Risky…Nearly as many small businesses close as begin each year

Employment – Small business are most responsible for new employment Over 60% of new jobs are created by businesses with

fewer than 500 employees

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Financing Most of the money needed to start a new business comes

from the entrepreneur and his or her family & friends

20% of Americans have invested in a business of someone they know well.

Venture capital – money provided by large investors to finance new products and new businesses that have a good chance to be very profitable

Productivity New & small businesses account for 55% of all innovative

products & services developed

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Opportunities & risks Giving up a regular job & stable income is a difficult

choice.

Innovation – invention or creation that is brand new

Improvement – designed change that increases the usefulness of a product, service, or process.

Some opportunities come from an improved design, more effective procedures, or greater attention to quality

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Recognizing risks 1/3 of new businesses are profitable

1/3 do not make a profit but continue to operate

The remaining third lose money.

Over a 10-year period, more than 50% of all new businesses are discontinued

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Why businesses close Lack of adequate capital

Low sales

Higher than expected expenses

Competitive pressure

An owner unprepared to manage a growing business

Operations requiring more time than the owner is willing to commit

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Small business ownership The greatest percentage of businesses in the U.S. is small business.

Small business employ half of all private sector employees

Small business – an independent business with fewer than 500 employees

The owner is usually the manager

It operates in one or very few locations

It typically serves a small market

It is not dominant in its field

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Small business employment Small businesses are responsible for

creating 60-80 percent of all new jobs.

Many small businesses are professional & technical.

Many construction companies operate as small businesses.

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Ownership diversity Women own more than ¼ of all small

businesses

More than 18% of small businesses have African-American, Asian-American, or Hispanic-American ownership.

The majority of small business owners are over 35 years old

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Small business advantages Meeting customer needs

Serve customers where the # of products and services needed is small or the requirements are too specialized for large business to make a profit

Small businesses are not able to match the lower operating costs of larger businesses.

They can compete by paying attention to their customers. They serve fewer customers but have more frequent contact with them.

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Providing unique services Business representatives must take a special

interest in the customer.

They spend time determining needs & discussing alternatives.

They have the expertise to plan & deliver the services that satisfy the customer.

Customers may be willing to pay a little more for something that they really want

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Most common reasons for small business failure Not keeping adequate records

Not having enough start-up money

Lack of management experience

Lack of experience with the type of business

Not controlling operating expenses

Poor location for the business

Failure to manage credit offered to customers

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Small business assistance Local groups of businesspeople

(chamber of commerce)

Small business administration (SBA) – government agency that helps small business owners develop business plans and obtain financing and other support

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Starting a small business An idea plus experience – every business begins with an idea

Right place & time – Find the right location

Team approach – employees must be chosen carefully

Preparation & research – having enough information to make good decisions about the business. This will save time & avoid later problems.

Info about customers, competitors, operations, government regulations, etc.

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Developing a business plan Written description of the business idea and

how it will be carried out.

Even if it’s not needed, a business plan should be developed to force the owner to think about important activities and their cost.

May help identify potential problems and serve as a guide to keep the business on track

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Steps in developing the business plan1. Gather & review information

2. Develop strategic alternatives Alternative plans for production, marketing,

staffing, & financing should be studied & identified

3. Each section of the business plan should be written

Competition, potential customers, operations, marketing, & finances.

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Financing the small business Types of financing

Start-up financing – amount of money needed to open the business

Buildings, inventory, supplies, licenses, etc.

Short-term financing – money needed to pay for the current operating activities of a business. (less than one year)

Long-term financing – money needed for main resources of a business (land, buildings, & equipment)

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Sources of financing Most difficult part of starting a business

Finding the needed money

Money comes from a mixture of owner-supplied & borrowed funds

Owner-supplied depends on type of business

Borrowed funds are obtained through loans from banks & other financial institutions

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