Chapter
5
Structuring Contemporary Business:
Options for Organizing Small and Large
businesses
Course: BUS 101
Lecturer: Emran Mohammad
What is Small Business
• small business is a firm that is independently
owned and operated, is not dominant in its field,
and meets industry specific size standards for
income or number of employees.
Contribution of Small business to
the Economy
1. Creating new jobs: on average three
of every four new jobs are created by
companies with fewer than 500
employees.
2. Creating new industries: Google,
Amazon, Face book
3. Innovation: Netflix.com
Why small
business fail
1. Management Shortcomings
– Fail to recruit specialized or expert personnel due
to finance shortage
– Underestimating marketing or management
department compared to finance department or
legal attorneys
– Founders of new businesses are typically excited
about the potential of newly designed products,
so they may neglect important details such as
marketing research to determine whether
potential customers share their excitement.
Why small business fail (cont)
2. Inadequate Financing:
– First-time business owners often assume
– that their firms will generate enough funds
– from the first month’s sales to finance continuing
operations. Building a business takes time, though.
Employees must be trained, equipment purchased,
deposits paid for rent and utilities, and marketing
dollars spent to inform potential customers about the
new firm and its product offerings.
– Uneven cash flows during the year in different
seasons
– Rely less on debt for financing than large businesses
Why small business fail (cont)
3. Government Regulation:
-Paperwork expense and complication:
• Difficult to bear the costs of government paperwork because of
their limited staff and budgets.
• Can’t hire specialized personnel for paper work, so the process
becomes lengthy and complicated
-Taxes:
•In addition to local, state, and federal
income taxes, employers must pay taxes
covering workers’ compensation
insurance, Social Security payments,
and unemployment benefits.
Increasing the likelihood of small
business success
• Develop a business plan
• Use the resources provided
by
– Small Business
Administration
– Local business incubators
– and other sources for advice,
funding, and networking
opportunities.
Creating a Business Plan
• business plan: written document that provides
an orderly statement of a company’s goals, the
methods by which it intends to achieve those
goals, and the standards by which it will
measure achievements.
Creating a Business Plan (cont.)
• Contents of a business plan:
– An executive summary that briefly answers the
who, what, why, when, where, and how questions
for the business
– An introduction that includes a general statement
of the concept, purpose, and objectives of the
proposed business
– Separate financial and marketing sections
– Résumés of principals—especially in plans
written to obtain financing
Use the Resources
• Small Business Administration
(SBA): federal agency that aids
small businesses by providing
management training and
consulting, financial assistance,
and support in securing
government contracts.
• Business incubator: organization
that provides temporary low cost,
shared facilities to small start-up
ventures. e.g: BizCube
Use the Resources
Small Business Investment Companies
(SBICs): These are SBA-licensed organizations
run by experienced
venture capitalists. SBICs use
their own capital, supplemented
with government loans, to invest
in small businesses. Like banks,
SBICs are profit-making enterprises,
but they are likely to be more
flexible than banks in their lending decisions.
Alternatives for Organizing a
business
Corporate
Management
When businesses join forces
1. Merger: combination of two or
more firms to form one company.
– A vertical merger combines firms
operating at different levels in the
production and marketing process—
the combination of a manufacturer and
a large retailer.
– A horizontal merger joins firms in
the same industry that wish to
diversify, increase their customer
bases, cut costs, or offer expanded
product lines
– A conglomerate merger combines
unrelated firms.
When businesses join forces (cont)
2. Acquisition: procedure in
which one firm purchases
the property and assumes
the obligations of another.
3. Joint venture: a
commercial enterprise
undertaken jointly by two
or more parties which
otherwise retain their
distinct identities.
Acquired
Source:
http://www.bbc.com/news/busin
ess-21769507
http://www.independent.co.uk/n
ews/business/news/tesco-signssupermarket-joint-venture-inchina-9453455.html