ENTREPRENEURSHIP
CHAPTER 4
What is Entrepreneurship?
 Think of some of your favorite things….clothes,
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shoes, stores, food, etc?
Who started the business?
Small businesses, usually those with fewer than 500
employees, represent 99% of American businesses.
They employ more than 50% of the nonmilitary
workforce.
A person who organizes and then runs a business is
called an entrepreneur.
What is Entrepreneurship?
 An entrepreneur’s life is challenging
 Planning is a big part of getting the business up and
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running
Must make good decisions
Find inventive solutions to problems
Risks are high but the rewards can be great
Does this challenge appeal to you?
Are you willing to take the risks?
Advantages of Entrepreneurship
 You are in charge
 Decide when and how hard to work
 How the business will operate
 Great job satisfaction
 Can lead to good income
Disadvantages of Entrepreneurship
 Financial risk
 Lose initial start up money and more
 Work long hours
 Competition can be difficult to overcome
 No guarantees of success
 Almost half of new businesses fail within their first four years.
Traits of Entrepreneurs
 Self-motivation
 They know what they want and believe in their ability to
achieve it
 They stay motivated by setting short and long-term goals.
 They make a plan how to achieve those goals
 Perceptive
 They see opportunities where others do not
 They look at problems and see opportunities
 Follow trends
 Do your research by talking to customers to see how to meet
their needs
Traits of Entrepreneurs
 Decisive
 Make decisions every day
 Must be good decisions
 Look at the whole picture
 How can the decision help
 How can the decision hurt
Being a Business Owner
 Four main ways to go into business
Start a new business
2. Buy an existing business
3. Buy a franchise
4. Join a family business
1.
Starting a New Business
 Chance to work hard and put your business ideas to
the test
 Rewards
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Do not inherit a pervious owner’s mistakes or poor
reputation
 Develop
your own reputation
 Build the business your way
 Use your experiences and information you have gained from
studying other businesses
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Personal satisfaction from knowing you built the business
Starting a New Business
 Challenges
 Requires more time and effort
 Start-up costs are often high (rent / buy space, equipment,
office supplies and insurance)
 You will have to convince lenders that your business idea is
sound
 It is risky = no guarantees that your business will succeed
Buying an Existing Business
 A successful may be for sale because the owners are retiring or
starting a new business
 An unsuccessful business might be for sale for many reasons
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Losing money
Before buying, see if the problems can be fixed and at what expense
 Advantages
 Can put you several steps ahead
 Save on start-up costs (jump in on leases, purchase existing
equipment)
 Can build on the successes
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Goodwill or loyalty of existing customers
Positive reputation
Trained staff
Buying an Existing Business
 Disadvantages
Location may be poor
 Competition may be taking business away
 Market outlook (potential for future sales) may be poor
 Building or equipment may need expensive repairs or
replacement
 May have a poor reputation
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Buying a Franchise
 Franchise – legal right to sell a company’s goods and
services in a particular area
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Example: restaurants, hair salons, real estate offices, etc.
 Buy the right to sell another company’s products
 In addition to paying for the franchise you agree to
pay a percentage of your profits to the parent
company
Buying a Franchise
 Advantages
 A recognized product name
 Established procedures and management systems
 A business reputation and customer goodwill
 Training and support services
 Advertising
 Financing
 Disadvantages
 Pay a portion of the profits to the parent company
 May be less profitable
 Must follow the parent company’s guidelines
 May be less satisfaction because you did not build it
Joining a Family Business
 Advantages
 Relatives might help you finance the business
 Family = Loyal + Trust
 Family members working as a team can achieve more than
individuals
 Relatives can teach you the business
 Customers are likely to give the same trust and goodwill to a
new owner who is part of the previous owner’s family
 Potential Disadvantages
 Some families work well together / others do not
 Difficulties at work can affect family relationships
Owning a Business
 One of the first questions – how to organize your
business?
 Most businesses begin as a sole proprietorship – owned
by one person. The owner owns all the assets and debts.
 A partnership is a legal arrangement in which two or
more people share ownership. Control and profits are
divided among the partners according a an agreement.
All partners are liable for the debts.
 A corporation is a business chartered by a state that
legally operates apart form the owner(s). The owners
buy shares of the company. Shareholders have only
limited responsibility for the debts.
Forms of Legal Ownership
Forms of Business
Ownership
Advantages
Disadvantages
Sole Proprietorship
•Owner makes all decisions
•Easiest form of business to set
up
•Least regulated form
•Limited by the skills, abilities, and
financial resources of one person
•Difficult to raise funds to finance
business
•Owner has sole financial responsibility
for company; personal assets may be
at risk
Partnership
•Can draw on the skills, abilities,
and financial resources of more
than one person
•Easier to raise funds than in
sole proprietorship
•More complicated than sole
proprietorship
•Tensions may develop among partners
•Owners liable for all business losses;
personal property may be at risk
Corporation
•Easier to finance than other
forms of business
•Financial liability of
shareholders limited
•Expensive to set up
•Record keeping can be time
consuming and costly
•Can pay more taxes than other forms
Financing
 Business Plan – gives specific information about your
business
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Describes your product and states where your business will be
located
How many employees you will hire and what their salaries are
Describes your competitors and points out their strengths and
weaknesses
Describes your marketing plan and timetable
 Financial Plan – spell out your start-up costs, operating
expenses and other costs for the first few months
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Operating expenses are the cost of doing business (ex. manufacturing
and selling the product)
Ongoing Operations
 Must keep accurate financial records
 Tax purposes
 Seeking additional financing
 Tells you how your business is doing
 Income statement
 Summary of a business’s income and expenses during a
specific period
 Revenue – income from sales
 Gross profit – difference between the cost of goods and their
selling price
 Net profit – amount left after operating expenses are
subtracted from the gross profit
Ongoing Operations
 Balance Sheet – summarizes a business’s assets,
liabilities and owner equity
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Assets – anything of monetary value that you own (current
assets - money in the bank , inventory, etc. / fixed assets –
land, equipment, furniture and fixtures)
Liabilities = debts a business owes
Current liabilities must be paid during the current year
 Long-term liabilities are not due in the next 12 months
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Net Worth – difference between assets and liabilities
The savings you invest in your business are your equity, or
ownership interest, in the business.
Ongoing Operations
 Cash flow statement – a monthly plan that shows
when you anticipate cash coming into the business
and when you expect to pay out cash
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This helps you see if you will have enough money to pay your
bills
Succeeding in Business
 Location –
Are you near your potential customers?
 Can you work at home to reduce expenses?
 Online business – location not as important
 Factors to consider
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Type of businesses in the area
Condition of streets and buildings
Cost of property
Location of competition
Location of your customers
Succeeding in Business
 Competition
 Know your competitor’s product or service
 Produce your product better and have better service!
 Management
 Successful businesses are usually managed well
 Poor management is one of the main reasons for business
failure
 Entrepreneurships need skills: reading, writing, listening,
speaking, and MATH (setting prices to calculating payroll)