© 2007 Prentice Hall, Inc. All rights reserved.
PowerPoint Presentation by Charlie CookThe University of West Alabama
Business Business EssentialsEssentials
Ronald J. Ronald J.
EbertEbertRicky W. Ricky W.
GriffinGriffin
Business Business EssentialsEssentials
Ronald J. Ronald J.
EbertEbertRicky W. Ricky W.
GriffinGriffin
The Contemporary Business WorldThe Contemporary Business WorldThe Contemporary Business WorldThe Contemporary Business World1111
6e6e
ENTREPRENEURSHIP, NEW VENTURES, AND BUSINESS OWNERSHIP
3
© 2007 Prentice Hall, Inc. All rights reserved. 3–2
L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S
After reading this chapter, you should be able to:After reading this chapter, you should be able to:1.1. Define Define small businesssmall business, discuss its importance to the , discuss its importance to the
U.S. economy, and explain popular areas of small U.S. economy, and explain popular areas of small business.business.
2.2. Explain entrepreneurship and describe some key Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and characteristics of entrepreneurial personalities and activities.activities.
3.3. Describe the business plan and the start-up decisions Describe the business plan and the start-up decisions made by small businesses and identify sources of made by small businesses and identify sources of financial aid available to such enterprises.financial aid available to such enterprises.
4.4. Discuss the trends in small business start-ups and Discuss the trends in small business start-ups and identify the main reasons for success and failure identify the main reasons for success and failure among small businesses.among small businesses.
© 2007 Prentice Hall, Inc. All rights reserved. 3–3
L E A R N I N G O B J E C T I V E S (cont’d)L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:After reading this chapter, you should be able to:
5.5. Explain sole proprietorships, partnerships, and Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and cooperatives and discuss the advantages and disadvantages of each.disadvantages of each.
6.6. Describe corporations, discuss their advantages and Describe corporations, discuss their advantages and disadvantages, and identify different kinds of disadvantages, and identify different kinds of corporations.corporations.
7.7. Explain the basic issues involved in managing a Explain the basic issues involved in managing a corporation and discuss special issues related to corporation and discuss special issues related to corporate ownership.corporate ownership.
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What’s in It for Me?What’s in It for Me?
By understanding the material discussed in this By understanding the material discussed in this chapter, you’ll be better prepared to:chapter, you’ll be better prepared to:1.1. Understand the challenges and opportunities Understand the challenges and opportunities
provided in new venture start-upsprovided in new venture start-ups
2.2. Assess the risks and benefits of working in a new Assess the risks and benefits of working in a new businessbusiness
3.3. Evaluate the investment potential inherent in a new Evaluate the investment potential inherent in a new enterpriseenterprise
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What Is a “Small” Business?What Is a “Small” Business?
Small Business DefinedSmall Business Defined A business that is independent (not part of a larger A business that is independent (not part of a larger
business) and that has relatively little influence in its business) and that has relatively little influence in its market.market.
The Importance of Small Business in the U.S. The Importance of Small Business in the U.S. EconomyEconomy Job creationJob creation InnovationInnovation Contributions to big businessContributions to big business
Suppliers of specialized services and raw materialsSuppliers of specialized services and raw materials Sellers of larger firms’ productsSellers of larger firms’ products
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Popular Areas of Small-Business Popular Areas of Small-Business EnterpriseEnterprise
Major small-business Major small-business industry groups:industry groups: ServicesServices RetailingRetailing ConstructionConstruction WholesalingWholesaling Finance and insuranceFinance and insurance Manufacturing and Manufacturing and
transportationtransportation
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FIGURE 3.2FIGURE 3.2 Small Business by IndustrySmall Business by IndustryFIGURE 3.2FIGURE 3.2 Small Business by IndustrySmall Business by Industry
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EntrepreneurshipEntrepreneurship
EntrepreneurshipEntrepreneurship The process of seeking businesses opportunities The process of seeking businesses opportunities
under conditions of riskunder conditions of risk
EntrepreneurEntrepreneur One who accepts the risks and opportunities of One who accepts the risks and opportunities of
creating, operating and growing a new businesscreating, operating and growing a new business
Small Business OwnerSmall Business Owner Does not always have growth of the business as a Does not always have growth of the business as a
primary entrepreneurial goalprimary entrepreneurial goal
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Entrepreneurial CharacteristicsEntrepreneurial Characteristics
Successful Entrepreneurs:Successful Entrepreneurs: are resourceful.are resourceful. are concerned for good customer relations.are concerned for good customer relations. desire to be their own boss.desire to be their own boss. can deal with uncertainty and risk.can deal with uncertainty and risk. are open-minded.are open-minded. rely on networks, business plans, and consensus.rely on networks, business plans, and consensus. have different views on how to succeed, to automate have different views on how to succeed, to automate
a business, and when to rely on experience or a business, and when to rely on experience or business acumen.business acumen.
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Starting and Operating a New BusinessStarting and Operating a New Business
Crafting a Business PlanCrafting a Business Plan Conveys a description of the business strategy for Conveys a description of the business strategy for
the new venture and how it will be implementedthe new venture and how it will be implemented A business plan should address:A business plan should address:
The entrepreneur’s goals and objectivesThe entrepreneur’s goals and objectives The strategies that will be used to obtain themThe strategies that will be used to obtain them The implementation of the chosen strategiesThe implementation of the chosen strategies
Preparing a Business PlanPreparing a Business Plan Setting goals and objectivesSetting goals and objectives Sales forecastingSales forecasting Financial planningFinancial planning
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Starting the Small BusinessStarting the Small Business
Buying an Existing BusinessBuying an Existing Business Less risk in purchasing ongoing, viable Less risk in purchasing ongoing, viable
businessbusiness
FranchisingFranchising AdvantagesAdvantages
Proven business opportunity for franchiseeProven business opportunity for franchisee Access to management expertise of Access to management expertise of
franchisorfranchisor
DisadvantagesDisadvantages Start-up costs for franchise purchaseStart-up costs for franchise purchase Ongoing payments to the franchisorOngoing payments to the franchisor Management rules and restrictions on the Management rules and restrictions on the
franchiseefranchisee
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Starting the Small Business (cont’d)Starting the Small Business (cont’d)
Starting from ScratchStarting from Scratch Disadvantage: Higher risk of business failureDisadvantage: Higher risk of business failure Advantage: Avoids problems of an existing businessAdvantage: Avoids problems of an existing business
Questions to Be Answered:Questions to Be Answered: Who and where are my customers?Who and where are my customers? How much will those customers pay for my product?How much will those customers pay for my product? How much of my product can I expect to sell?How much of my product can I expect to sell? Who are my competitors?Who are my competitors? Why will customers buy my product rather than the Why will customers buy my product rather than the
product of my competitors?product of my competitors?
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Financing the Small BusinessFinancing the Small Business
Personal ResourcesPersonal Resources
Loans from Family and FriendsLoans from Family and Friends
Bank LoansBank Loans
Venture Capital CompaniesVenture Capital Companies
Small-Business Investment Companies (SBICs)Small-Business Investment Companies (SBICs)
Minority Enterprise Small-Business Investment Minority Enterprise Small-Business Investment Companies (MESBICs) Companies (MESBICs)
SBA Financial ProgramsSBA Financial Programs Guaranteed loans and immediate loans programsGuaranteed loans and immediate loans programs
Management advice (SCORE and SBDCs)Management advice (SCORE and SBDCs)
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Trends in Small-Business StartupsTrends in Small-Business Startups
Emergence of Emergence of E-commerceE-commerce
Crossovers fromCrossovers fromBig BusinessBig Business
Opportunities for Opportunities for Minorities & WomenMinorities & Women
GlobalGlobalOpportunitiesOpportunities
BetterBetterSurvival RatesSurvival Rates
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Reasons for Failure and SuccessReasons for Failure and Success
FailureFailure Poor managementPoor management NeglectNeglect Weak control systemsWeak control systems Insufficient capitalInsufficient capital
SuccessSuccess Hard work, drive, and Hard work, drive, and
dedicationdedication Market demandMarket demand Managerial competenceManagerial competence Luck!!!Luck!!!
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Noncorporate Business OwnershipNoncorporate Business Ownership
Forms of Legal OwnershipForms of Legal Ownership Sole proprietorship: Owned and operated by one Sole proprietorship: Owned and operated by one
personperson Partnership: Partnership: Sole proprietorship multiplied by the
number of partner-owners CorporationCorporation
Choice of Ownership FormChoice of Ownership Form Based on the entrepreneur’s needs/desires for Based on the entrepreneur’s needs/desires for
control, ownership participation, financing sources, control, ownership participation, financing sources, and appropriateness of the chosen form for the and appropriateness of the chosen form for the industry in which the firm will competeindustry in which the firm will compete
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Sole ProprietorshipsSole Proprietorships
Advantages:Advantages: FreedomFreedom Simple to formSimple to form Low start-up costsLow start-up costs Tax benefitsTax benefits Formation of Formation of
cooperativescooperatives
Disadvantages:Disadvantages: Unlimited liability: Unlimited liability: Owners
are responsible for all debts of a business
Limited resourcesLimited resources Limited fundraising Limited fundraising
capabilitycapability Lack of continuityLack of continuity
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PartnershipsPartnerships
Advantages:Advantages: More talent and More talent and
moneymoney More fundraising More fundraising
capabilitycapability Relatively easy to Relatively easy to
formform Limited liability for Limited liability for
limited partnerslimited partners Tax benefitsTax benefits
Disadvantages:Disadvantages: Unlimited liability for Unlimited liability for
general partnergeneral partner Disagreements Disagreements
among partnersamong partners Lack of continuityLack of continuity
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Alternatives to General PartnershipsAlternatives to General Partnerships
Limited PartnershipLimited Partnership Allows for Allows for limited partnerslimited partners who invest money but are liable for who invest money but are liable for
debts only to the extent of their investmentsdebts only to the extent of their investments Must have at least one Must have at least one generalgeneral (or (or activeactive) ) partnerpartner, who is , who is
usually the person who runs the business and is responsible for usually the person who runs the business and is responsible for its survival and growthits survival and growth
Master Limited PartnershipMaster Limited Partnership Organization sells shares (partnership interests) to investors on Organization sells shares (partnership interests) to investors on
public exchange. Investors are paid back from profitspublic exchange. Investors are paid back from profits The master partner retains at least 50 percent ownership and The master partner retains at least 50 percent ownership and
runs the business, while minority partners have no management runs the business, while minority partners have no management voicevoice
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CooperativesCooperatives
Combine the freedom of sole proprietorships Combine the freedom of sole proprietorships with the financial power of corporationswith the financial power of corporations
Groups of sole proprietorships or Groups of sole proprietorships or partnerships agree to work together for their partnerships agree to work together for their common benefitcommon benefit
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CorporationsCorporations
CorporationCorporation ““An artificial being, invisible, intangible, and existing An artificial being, invisible, intangible, and existing
only in contemplation of the law”only in contemplation of the law”
Corporations May:Corporations May: Sue and be suedSue and be sued Buy, hold, and sell propertyBuy, hold, and sell property Make and sell productsMake and sell products Commit crimes and be tried and punished for themCommit crimes and be tried and punished for them
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CorporationsCorporations
Advantages:Advantages: Limited liability: Limited liability: The
owners’ responsibility for the debts of a business is limited to their investment in a business
ContinuityContinuity Stronger fundraising Stronger fundraising
capabilitycapability
Disadvantages:Disadvantages: Double taxation of Double taxation of
dividendsdividends Fluid controlFluid control Complicated and Complicated and
expensive to formexpensive to form
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Types of CorporationsTypes of Corporations
Closely Held (Private) CorporationClosely Held (Private) Corporation
Publicly Held (Public) CorporationPublicly Held (Public) Corporation
Subchapter S CorporationSubchapter S Corporation
Limited Liability Corporation (LLC)Limited Liability Corporation (LLC)
Professional CorporationProfessional Corporation
Multinational (Transnational) CorporationMultinational (Transnational) Corporation
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Managing a CorporationManaging a Corporation
Corporate GovernanceCorporate Governance The roles of shareholders, directors, and other The roles of shareholders, directors, and other
managers in corporate decision making and managers in corporate decision making and accountabilityaccountability
Corporate governance is established by the firm’s Corporate governance is established by the firm’s bylaws and involves three bodies:bylaws and involves three bodies: StockholdersStockholders ( (shareholdersshareholders): Investors who buy ): Investors who buy
ownership shares in the form of stockownership shares in the form of stock The The board of directors:board of directors: Group elected by stockholders to Group elected by stockholders to
oversee corporate managementoversee corporate management CorporateCorporate officers:officers: Top managers hired by the board to Top managers hired by the board to
run the corporationrun the corporation
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Stockholders: Owners of CorporationsStockholders: Owners of Corporations
Stock: A share of ownership in a corporationStock: A share of ownership in a corporation
Dividends: Profits distributed among stockholders
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Special Issues in Corporate OwnershipSpecial Issues in Corporate Ownership
Joint Ventures and Strategic Alliances:Joint Ventures and Strategic Alliances: Strategic alliance: Strategic alliance: Two or more organizations Two or more organizations
collaborate on a project for mutual gaincollaborate on a project for mutual gain Joint venture:Joint venture: Partners share ownership of a new Partners share ownership of a new
enterpriseenterprise
Employee Stock Ownership PlansEmployee Stock Ownership Plans Allows employees to own a share of the corporation Allows employees to own a share of the corporation
through trusts established on their behalfthrough trusts established on their behalf
Institutional InvestorsInstitutional Investors Control enormous resources and can buy huge Control enormous resources and can buy huge
blocks of stockblocks of stock
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Special Issues in Corporate Ownership (cont’d)Special Issues in Corporate Ownership (cont’d)
Mergers, Acquisitions, Divestitures, and Spin-Mergers, Acquisitions, Divestitures, and Spin-Offs:Offs: Merger: Merger: Two firms combine to create a new Two firms combine to create a new
companycompany Acquisition:Acquisition: One firm buys another outright One firm buys another outright Divestiture:Divestiture: Strategy whereby a firm sells one or Strategy whereby a firm sells one or
more of its business unitsmore of its business units Spin-off: Spin-off: A firm sells part of itself to raise capitalA firm sells part of itself to raise capital
© 2007 Prentice Hall, Inc. All rights reserved. 3–28
K E Y T E R M SK E Y T E R M S
acquisition acquisition
board of directors board of directors
business plan business plan
chief executive officer (CEO) chief executive officer (CEO)
closely held (or private) closely held (or private) corporation corporation
cooperative cooperative
corporate governance corporate governance
corporation corporation
divestiture divestiture
double taxation double taxation
employee stock ownership plan employee stock ownership plan (ESOP) (ESOP)
entrepreneurentrepreneur
entrepreneurship entrepreneurship
franchise franchise
general (or active) partner general (or active) partner
general partnership general partnership
institutional investor institutional investor
joint venture joint venture
limited liability limited liability
limited liability corporation (LLC) limited liability corporation (LLC)
limited partner limited partner
limited partnership limited partnership
master limited partnership master limited partnership
merger merger
multinational (or transnational) multinational (or transnational) corporationcorporation
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K E Y T E R M S (cont’d)K E Y T E R M S (cont’d)
officers officers
professional corporation professional corporation
publicly held (or public) corporation publicly held (or public) corporation
S corporation S corporation
small business small business
Small Business Administration Small Business Administration (SBA) (SBA)
Small Business Development Small Business Development Center (SBDC) Center (SBDC)
small-business investment small-business investment company (SBIC) company (SBIC)
sole proprietorship sole proprietorship
spin-offspin-off
stockholder (or shareholder) stockholder (or shareholder)
strategic alliance strategic alliance
tender offer tender offer
unlimited liability unlimited liability
venture capital companyventure capital company
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