Lecture Business (4/e): Chapter 5 - Ferrell, Hirt, Ferrell

Part 2
Starting and
Growing a
Business

© 2015 McGraw­Hill Education.


5-2

 
CHAPTER 4

Options for Organizing Business

CHAPTER 5

Small Business, Entrepreneurship, and
Franchising


5-3

Learning Objectives
LO 5-1

Define entrepreneurship and small business.

LO 5-2
U.S.

Investigate the importance of small business in the
economy and why certain fields attract small business.

LO 5-3

Specify the advantages of small-business ownership.

LO 5-4
Summarize the disadvantages of small-business
ownership, and analyze why many small businesses fail.
LO 5-5
and

Describe how you go about starting a small business
what resources are needed.

LO 5-6
Evaluate the demographic, technological, and
economic trends that are affecting the future of small business.
LO 5-7

Explain why many large businesses are trying to “think
small”.


5-4

What Is a Small Business?

Small Business

•

Any independently owned and operated business that is not dominant in
its competitive area

Small Business Administration (SBA)
•

An independent agency of the federal government that offers managerial
and financial assistance to small businesses


5-5

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 a business
normally

Focus

Managerial inexperience or
incompetence

Reputation

Inability to cope with growth


5-6

Advantages/Disadvantages of
Small-Business Ownership
Some of the advantages
of small businesses
include:
Ø

Flexibility

Ø

Lowers start-up costs

Ø

Disadvantages…

v

Entrepreneurs
experience a
great deal of
independence
but also a
great deal of
stress

v

Many fail

Ability to be your own
boss


5-7

Starting a Business


5-8

Forms of Business Ownership

5-9

Equity Financing
Referred to as equity financing because
the owner uses real personal assets
rather than borrowing funds from outside
sources to get started in a new business

The owner may bring useful personal
assets (such as a computer, desks, and
other furniture, a car or truck) as part of
his or her ownership interest in the firm


5-10

Venture Capitalists

v

Although this form of equity financing has
helped many small businesses, they require that
the small-business owner share the profits of the
business (and sometimes the control, as well)
with the investors


5-11

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


5-12

Franchising


5-13

Franchises
Advantages

Disadvantages

Training & support

Fees and profit sharing

Brand-name appeal

Standardized operations

Standardized quality of
goods & services

Restrictions on purchasing

National advertising

Limited product line

Financial assistance

Possible market saturation

Proven products

Less freedom in decisions

Centralized buying power
Site selection & territorial
protection
Greater chance for success


5-14

The Future for Small Business


5-15

Making Big Businesses Act “Small”
The continuing success and competitiveness of small
businesses through rapidly changing conditions in the
business world have led many large corporations to take a
closer look at what their smaller rivals tick
Ø

Ø

Large firms emulate smaller ones to improve their bottom line
Downsizing (rightsizing) – To reduce management layers,
corporate staff, and work tasks in order to make the firm more
flexible, resourceful, and innovative