Chapter 5
Adeyl Khan, Faculty, BBA, NSU
Most Businesses are Small Businesses
 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.
Adeyl Khan, Faculty, BBA, NSU
What is Small Business?
 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.
Adeyl Khan, Faculty, BBA, NSU
Typical Small-Business Ventures
Adeyl Khan, Faculty, BBA, NSU
Major Industries Dominated by Small
Business
Adeyl Khan, Faculty, BBA, NSU
Contributions of Small Business
 Creating New Jobs
 Creating New Industries
 Innovation
Adeyl Khan, Faculty, BBA, NSU
Small Business Failure
 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.
Adeyl Khan, Faculty, BBA, NSU
Reasons Why Small Businesses Fail
 Management Shortcomings
 Inadequate Financing
 Government Regulation
Adeyl Khan, Faculty, BBA, NSU
Sources of Small Business Financing
Adeyl Khan, Faculty, BBA, NSU
Increasing the Likelihood of Small
Business Success
 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.
Adeyl Khan, Faculty, BBA, NSU
Small Business Administration
 Financial Assistance
 Loan Guarantees
 Microloans
 Small Business Investment
Companies (SBICs)
 Active Capital
Adeyl Khan, Faculty, BBA, NSU
Other Specialized Assistance
 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
Adeyl Khan, Faculty, BBA, NSU
Opportunities for Women & Minorities
 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
Adeyl Khan, Faculty, BBA, NSU
Create a business plan for your org.
Adeyl Khan, Faculty, BBA, NSU
14
Minority Owned Businesses
Adeyl Khan, Faculty, BBA, NSU
The Franchising Alternative
 A contractual business agreement between a
manufacturer or another supplier and a dealer to
produce and market the supplier’s good or service.
Adeyl Khan, Faculty, BBA, NSU
The Franchising Agreement
– 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.
Adeyl Khan, Faculty, BBA, NSU
Benefits and Problems of Franchising
 Advantages
 Prior Performance
Record
 Recognizable Company
Name
 Prove Business Model
 Tested Management
program
Adeyl Khan, Faculty, BBA, NSU
 Disadvantages
 Franchise Fees
 Future Payments
 Linked to Reputation
and Management
 Franchise Agreement
Restrictions
Alternatives for Organizing A Business
Adeyl Khan, Faculty, BBA, NSU
Forms of Private Ownership
Adeyl Khan, Faculty, BBA, NSU
Legal Structures to Meet Changing
Needs
 Financial Situation
 Management Skills and Limitations
 Management Styles and Capabilities
 Exposure to Liability
Adeyl Khan, Faculty, BBA, NSU
Types of Corporations
 Domestic Corporation
 Foreign Corporation
 Alien Corporation
 Employee-Owned Corporations
 Not-for-Profit Corporations
Adeyl Khan, Faculty, BBA, NSU
Corporate Management
 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.
Adeyl Khan, Faculty, BBA, NSU
When Businesses Join Forces
 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
Adeyl Khan, Faculty, BBA, NSU
Public and Collective Ownership
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.
Adeyl Khan, Faculty, BBA, NSU
Adeyl Khan, Faculty, BBA, NSU
26
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.
Adeyl Khan, Faculty, BBA, NSU