>>>>>>>>
Chapter 5
Options for Organizing
Small and Large Businesses
1 Distinguish between small and large
businesses and identify common
industries for small firms.
2 Discuss the economic and social
contributions of small business.
6
Summarize the forms of business
ownership and the advantages
and disadvantages of each form.
7
Identify the levels of corporate
management.
8
Describe recent trends in
mergers and acquisitions.
9
Differentiate among private,
public, and collective ownership.
3 Explain why small businesses fail.
Describe how the Small Business
4 Administration assists small-business
owners.
5
Explain franchising benefits for
franchisors and franchisees.
• 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.
• 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.
Creating New Jobs
Creating New Industries
Innovation
 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.
Management Shortcomings
Inadequate Financing
Government Regulation
• 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.
• Financial Assistance
– Loan Guarantees
– Microloans
• Small Business
Investment Companies
(SBICs)
• Active Capital
• Set-aside Programs
– Government Contracts (over 23%)
• 5% for women and minorities
– Assistance in Financing Government
Procurement
• Business Incubators
– Local community initiatives to share resources
for small start-ups
• The University of Tennessee
• 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
A contractual business agreement
between a manufacturer or another
supplier and a dealer to produce and
market the supplier’s good or service.
– 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.
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
 Financial Situation
 Management Skills and Limitations
 Management Styles and Capabilities
 Exposure to Liability
•
•
•
•
Domestic Corporation
Foreign Corporation
Alien Corporation
Employee-Owned
Corporations
• Not-for-Profit
Corporations
• 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.
• Mergers and Acquisitions (M&A)
– Merger - combination of two or more firms to form
one company.
• Vertical
• Horizontal
• Conglomerate
– Acquisition - procedure in which one firm purchases
the property and assumes the obligations of another.
• Joint Ventures – partnership between companies for a
specific purpose
Public Ownership – a unit or agency of government
owns and operates an organization. Parking structures,
water systems, turnpike authority
Customer-Owned Businesses – collective ownership of a
production, storage, transportation or marketing organization
is a cooperative.