McGraw-Hill © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Three: Entrepreneurship and Starting a Small Business
© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Learning Outcomes
1. Explain the traits of a successful entrepreneur.
2. Describe the alternatives to starting a business from scratch.
3. Discuss the legal forms of business ownership, and the advantages and disadvantages of each.
4. Describe the five main areas of focus when starting a small business.
5. Explain why businesses fail and how they succeed.
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Entrepreneurs
Accepting the risk of starting and running a business
40% of people between 8 and 21 want to start their own businesses someday!
What are the qualities of an entrepreneur? Self directed Self nurturing Action oriented Energetic Tolerance of uncertainty …to name a few!
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Why Start a Business?
Opportunities Profit Independence Challenge Flexibility The chance to make a difference
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Options for Starting a Business
Start a business from scratch Buy an existing business Buy a franchise
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Start a Business from Scratch
Advantages Be your own boss Can operate business any way you wish Get to make all of the decisions
Disadvantages More cost and risk, since there is no proven way of doing
things Competition Can be lonely
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Start a Business from Scratch
Advice for getting started Find a mentor Do your research Know the industry Market yourself Read
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Buy an Existing Business
Advantages The business already has a proven track record You can save time and resources Obtain training Can be easier to finance
Disadvantages May be a higher cost May not be the location you want Could be hidden problems with the business Bizbuysell.com
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Franchises
Advantages Proven products and services Marketing assistance Training Operations and purchase assistance Ownership and lower failure rate
Disadvantages High start up costs Sharing profits Negative publicity by association Cannibalization Management restrictions
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Franchises
Chain Store A business location where there are one of many stores,
with the same management Company store
When a brand name is shared, but the management is not central. A company store is a franchise that the franchisor owns
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Legal Forms of Ownership
Sole Proprietorship Advantages
Easiest to start Ease of entry and exit Retail all profit
Disadvantages Financial burden Limited skills Unlimited liability
Define Long hours No fringe benefits
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Legal Forms of Ownership
Partnership A business with two or more owners Advantages
More financial resources Pooled knowledge Risk distribution
Disadvantages Division of profits Unlimited liability Conflict Difficult to get out
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Legal Forms of Ownership
Types of Partnerships General Partnership: All owners share business
and financial obligation Limited Partnership: One or more general
partners and one or more limited partners General partner: Owner with unlimited liability and is
active in managing the firm Limited partner: Owner who invests money in the
business but does not have liability for losses beyond the initial investment
MLP and LLP: Special forms of partnerships which are taxed different and have limited liability
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Legal Forms of Ownership
Corporations Advantages
Limited Liability Define
Shared ownership Continuity Lower Tax rates Fringe benefits
Disadvantages Double taxation More paperwork More regulations Owners’ limited focus
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Legal Forms of Ownership
Corporations Types of corporations
S-Corp Taxed like a sole proprietorship Some restrictions on size of company
LLC (Limited Liability Companies) Similar to S-Corp, but without the restrictions Limited Liability Choose their form of taxation
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
The Five Areas of Focus
Planning the business Financing the business
Venture capitalists Angel investors
Knowing your customers (marketing) Managing employees Keeping records (accounting)
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Why Do Business Fail?
Lack of planning Lack of Marketing Lack of Financial understanding The wrong business partner Poor location Competition
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© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill
Making Your Business Succeed
Seek help! Focus on what can make the business fail and
figure out ways to mitigate this Have a business plan Control emotions and be realistic Monitor and understand cash flow Focus on Sales Watch for changes-don’t get too comfortable Have fun!
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