Ferrell Hirt Ferrell
A CHANGING WORLD
EIGHTH EDITION
FHF
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
part
Starting and Growing
A Business
2
CHAPTER 4 Options for Organizing Business
CHAPTER 5 Small Business, Entrepreneurship, and Franchising
FHF
5-2
Entrepreneurship
[
The process of creating and
managing a business to
achieved desired objectives
]
FHF
5-3
What is Small Business?
 “Smallness” is relative
 Small business is any independently owned and
operated business, not dominant in its competitive
area
 Employs less than 500 people
FHF
5-4
Women in Small Business
 Women play a vital role in the economy
• As consumers, employees and business owners
 Women own over 10 million businesses in the U.S.
• Employ 13 million people
• Annual sales of $2 trillion
FHF
5-5
Supporting Small Businesses
 The Small Business Administration (SBA) is an
independent agency of the federal government that
offers managerial and financial assistance to small
businesses.
FHF
5-6
Impact of Small Businesses
FHF
5-7
Small Businesses Represent
 64% of new net jobs, annually, created in the
last 15 years
 99.7% of all businesses employ fewer than
500 people
 89% of businesses employ fewer than 19 people
FHF
5-8
What People in the U.S. Say is Their
Idea of the American Dream
FHF
5-9
Small Business Innovation
Small businesses represent 55%
of all innovations
 Airplane
 Audio tape recorder
 Double-knit fabric
 Fiber-optic examining equipment
 Heart valve
 Optical scanner
 Personal computer
 Soft contact lenses
 Zipper … and much more
FHF
5-10
Traits of Successful
Entrepreneurs
FHF
5-11
Popular Industries for
Small Business
Especially attractive industries to entrepreneurs:
 Retailing and wholesaling
 Services
 Manufacturing
 High technology
FHF
5-12
Retailing and Wholesaling
Selling directly to consumers







Music stores
Sporting-goods shops
Dry cleaners
Boutiques
Drugstores
Restaurants
Hardware stores
FHF
5-13
Services and Manufacturing
Services
 Service sector is 80% of U.S. jobs
 Attracts individuals whose skills are not required by
large firms
Manufacturing
 Small manufacturers excel at customization
 The Malcolm Baldridge National Quality Award rewards
innovative small manufacturing firms
FHF
5-14
High Technology
Businesses that depend heavily on advanced
scientific and engineering knowledge.
 40% of high-tech jobs are with small businesses
 Government offers small business grants for high-tech
companies through Small Business Innovation Research
FHF
5-15
Small Business Ownership
Advantages
Disadvantages
Independence
High stress level
Costs
High failure rate
50% of all new businesses fail within the first 5
years
Flexibility
Undercapitalization
Lack of funds to operate normally
Focus
Managerial inexperience or
incompetence
Reputation
Inability to cope with growth
FHF
5-16
Top 5 Biggest Challenges, Concerns &
Goals of Small Businesses
FHF
5-17
Starting a Business




Start with a concept or general idea
Create a business plan
Devise a strategy to guide planning & development
Make decisions
•
•
•
•
Form of ownership
Financing
Acquire existing business or start new business?
Buy a franchise
FHF
5-18
The Business Plan
A precise statement of the rationale for
the business and a step-by-step explanation
of how it will achieve its goals. Acts as a guide
and reference document.
 Explanation of the business
 Analysis of competition
 Income/Expense estimates
FHF
5-19
Forms of Business Ownership
 Sole Proprietorship
 Partnership
 Corporation
FHF
5-20
Financial Resources
Provide your own personal capital
 Cash money
 Obtain capital
Financing options
 Loans
 Stocks
 Equity financing
FHF
5-21
Equity Financing
[
Selling or borrowing against the value of
an asset such as an (automobile, insurance
policy, savings account) to obtain funds to
operate a business
]
FHF
5-22
Venture Capitalists
[
Persons/organizations that agree to
provide funding for a new business in
exchange for an ownership interest or
stock. Usually requires a sharing of
ownership/control
]
FHF
5-23
Debt Financing
[
Borrowing financial resources typically
from a bank or lending institution– often
collateral is needed
]
FHF
5-24
Line of Credit
[
An agreement by which a financial
institution promises to lend a business a
predetermined sum on demand
]
FHF
5-25
Starting from Scratch vs.
Buying an Existing Business
Starting from scratch can be expensive
and will require a lot of promotional efforts
to familiarize customers with the business
 Existing businesses have the advantage of a built-in network of
customers, suppliers and distributors
 Reduces guesswork
 Involves taking on any problems the business already had
FHF
5-26
Franchising
A license to sell another’s products or to use
another’s name in business, or both
 Franchiser
 The company that sells a franchise
 Franchisee
 The purchaser of a franchise
FHF
5-27
Franchises
Advantages
Disadvantages
Training & support
Fees and profit sharing
Brand name appeal
Standardized operations
National advertising
Restrictions on purchasing
Financial assistance
Limited product line
Proven products
Possible market saturation
Greater chance for success
Less freedom in decisions
FHF
5-28
Popular Franchises
One of the most popular franchises in the world




The world’s largest restaurant chain
Over 33,300 restaurants in nearly 100 countries
Requires less start-up capital than many other franchises
Reputation for healthy food has improved Subway’s image
FHF
5-29
Fastest Growing Franchises
FHF
5-30
Help for Small
Business Managers
 Organizations and programs exist to help
small businesses
 Small Business Administration
 Small Business Development Centers
 Service Corps of Retired Executives
 Active Corps of Executives
 Small Business Institutes
 U.S. and Local Departments of Commerce
 Other small businesses
FHF
5-31
The Future for Small Business
Demographic Trends
 The Baby Boomers
 Generation Y (Millennials)
 Immigrants and shifting demographics
…continued on next page
FHF
5-32
The Future for Small Business
Technological & Economic Trends
 Internet usage continues to increase
 Increase in service exports
 Economic turbulence
 Deregulation of the energy market & alternative fuels
FHF
5-33
Top Cities to Launch a
Small Business
FHF
5-34
Big Businesses Acting Small
Common Approaches
 Large firms emulate smaller ones to improve
bottom line
 Downsizing (Rightsizing)
• Acting small from inception – Southwest Airlines
 Intrapreneurs
• Individuals in large firms who take responsibility for the
development of innovations within the organization
FHF
5-35