3 chapter

Entrepreneurship, New Ventures, and Business Ownership

Business Essentials, 7th Edition Ebert/Griffin

Instructor Lecture PowerPoints

2009 Pearson Education, Inc.
PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

Whats in It for Me?

By understanding the material discussed in this chapter, youll be better prepared to:
1. Understand the keys to entrepreneurial success, including business planning 2. Discuss the reasons for success or failure 3. Evaluate the advantages and disadvantages of different kinds of ownership

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What Is a Small Business?

Small Business Defined
A business that is independent (not part of a larger business) and that has relatively little influence in its market.

The Importance of Small Business in the U.S. Economy

Job creation Innovation Contributions to big business
Suppliers of specialized services and raw materials Sellers of larger firms products
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FIGURE 3.2: Small Business by Industry

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Entrepreneurship
Entrepreneurship
The process of seeking business opportunities under conditions of risk

Entrepreneur
One who accepts the risks and opportunities of creating, operating and growing a new business

Small Business Owner A person who independently owns a business that has relatively little impact in its market

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Entrepreneurial Characteristics
Successful Entrepreneurs:
Are resourceful. Are concerned about good customer relations. Desire to be their own boss. Can deal with uncertainty and risk. Are open-minded. Rely on networks, business plans, and consensus. Have different views on how to succeed, to automate a business, and when to rely on experience or business acumen.

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Starting and Operating a New Business

Crafting a Business Plan
Conveys a description of the business strategy for the new venture and how it will be implemented A business plan should address:
The entrepreneurs goals and objectives The strategies that will be used to obtain them The implementation of the chosen strategies

Preparing a Business Plan

Setting goals and objectives Sales forecasting Financial planning
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Starting the Small Business

Buying an Existing Business
Less risk in purchasing ongoing, viable business

Franchising
Advantages
Proven business opportunity for franchisee Access to management expertise of franchisor

Disadvantages
Start-up costs for franchise purchase Ongoing payments to the franchisor Management rules and restrictions on the franchisee

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Starting the Small Business (contd)

Starting from Scratch
Disadvantage: Higher risk of business failure Advantage: Avoids problems of an existing business

Questions to Be Answered:
Who and where are my customers? How much will those customers pay for my product? How much of my product can I expect to sell? Who are my competitors? Why will customers buy my product rather than the product of my competitors?

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Financing the Small Business

Personal Resources

Loans from Family and Friends

Bank Loans Venture Capital Companies

Small-Business Investment Companies (SBICs)

Minority Enterprise Small-Business Investment Companies (MESBICs) SBA Financial Programs
Guaranteed loans and immediate loan programs Management advice (SCORE and SBDCs)
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Trends in Small-Business Startups

Emergence of E-commerce Crossovers from Big Business Opportunities for Minorities & Women Global Opportunities Better Survival Rates

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Reasons for Failure and Success

Failure

Poor management Neglect Weak control systems Insufficient capital

Hard work, drive, and dedication Market demand Managerial competence Luck!!!
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Success

Business Ownership
Forms of Legal Ownership
Sole proprietorship: Owned and operated by one person Partnership: Sole proprietorship multiplied by the number of partner-owners Corporation

Choice of Ownership Form

Based on the entrepreneurs needs/desires for control, ownership participation, financing sources, and appropriateness of the chosen form for the industry in which the firm will compete
2009 Pearson Education, Inc.

Sole Proprietorships
Advantages:
Freedom Simple to form Low start-up costs Tax benefits Formation of cooperatives

Disadvantages:
Unlimited liability:
Owners are responsible for all debts of a business

Limited resources Limited fundraising capability Lack of continuity

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Partnerships
Advantages:
More talent and money More fundraising capability Relatively easy to form Limited liability for limited partners Tax benefits

Disadvantages:
Unlimited liability for general partner Disagreements among partners Lack of continuity

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Alternatives to General Partnerships

Limited Partnership
Allows for limited partners who invest money but are liable for debts only to the extent of their investments Must have at least one general (or active) partner, who is usually the person who runs the business and is responsible for its survival and growth

Master Limited Partnership

Organization sells shares (partnership interests) to investors on public exchange. Investors are paid back from profits The master partner retains at least 50 percent ownership and runs the business, while minority partners have no management voice
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Cooperatives
Combine the freedom of sole proprietorships with the financial power of corporations Groups of sole proprietorships or partnerships agree to work together for their common benefit

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Corporations
Corporation
Firms that have filed papers of incorporation

Corporations may:
Be small or large Sue and be sued Buy, hold, and sell property Make and sell products Commit crimes and be tried and punished for them Have limited liability for individuals who form them

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Corporations
Advantages:
Limited liability: The
owners responsibility for the debts of a business is limited to their investment in a business

Disadvantages:
Double taxation of dividends Fluid control Complicated and expensive to form

Continuity Stronger fundraising capability

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Types of Corporations
Closely Held (Private) Corporation Publicly Held (Public) Corporation Subchapter S Corporation

Limited Liability Corporation (LLC)

Professional Corporation (PC)

Multinational (Transnational) Corporation

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Managing a Corporation
Corporate Governance
The roles of shareholders, directors, and other managers in corporate decision making and accountability Corporate governance is established by the firms bylaws and involves three bodies:
Stockholders (shareholders): Investors who buy ownership shares in the form of stock The board of directors: Group elected by stockholders to oversee corporate management Corporate officers: Top managers hired by the board to run the corporation

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Stockholders: Owners of Corporations

Stock: A share of ownership in a corporation Dividends: Profits distributed among stockholders

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Special Issues in Corporate Ownership

Joint Ventures and Strategic Alliances:
Strategic alliance: Two or more organizations collaborate on a project for mutual gain Joint venture: Partners share ownership of a new enterprise

Employee Stock Ownership Plans

Allows employees to own a share of the corporation through trusts established on their behalf

Institutional Investors
Control enormous resources and can buy huge blocks of stock
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Special Issues in Corporate Ownership (contd)

Mergers, Acquisitions, Divestitures, and SpinOffs:
Merger: Two firms combine to create a new company Acquisition: One firm buys another outright Divestiture: Strategy whereby a firm sells one or more of its business units Spin-off: A firm sells part of itself to raise capital

2009 Pearson Education, Inc.