Entrepreneurship:A Business of Your

Own

Workforce EssentialsFall 2011

Examples:

Florists Barbers/Hair Dressers Restaurant Owners Printing Press Owners

Do you know any business owners?

A person who organizes and manages a

business.

Entrepreneur

The organization and management of a

business.

Entrepreneurship

Helps keep the economy strong by creating JOBS! Helped the US have a higher standard of living

People working = more $ to spend! More $ to spend = more demand for goods & services

of small businesses Small businesses hire more people to fill demand More people working + More $ to spend = increased

standard of living Can do what corporations can’t! Create competition between each other and

corporations to keep prices in line

Importance of Small Business

Being an entrepreneur involves:

Organizing a business, Planning its direction, and Taking the risks.

Opportunities for Entrepreneurs

People go into business for themselves because:

Can be exciting/rewarding Gives a sense of accomplishment “Be Your Own Boss!” Freedom to make decisions In charge of setting own schedule Opportunity to try out new ideas

If new ideas are accepted – the entrepreneur gets credit! $$$$$$$$$$ Credit=Profit

Profit – the money left from business income after paying all expenses (Entrepreneurs get to keep!!!!)

Advantages

Must be willing to do EVERYTHING connected with a

new business Must do the jobs of bookkeeper, manager, &

salesperson May have to do the jobs of secretary & janitor May require lots of work hours (about 60 hours per

week) Emotional strain – decision making, profitability Pressure of knowing business could fail

Disadvantages

Possibilities are almost endless Examples:

Sell homemade products (clothing, artwork, food)

Offer a service (house-cleaning, child care, car repair)

Build a factory and manufacture items (tools, toys, furniture)

Established business concept or new concept (dry cleaners, restaurants vs. computer software)

Types of Business Ventures

The right to marker another company’s

product or service. Purchasing this right usually costs thousands or more!

Examples: fast food restaurants, convenience stores, dry cleaners

Advantages Proven track record of success Exclusivity – no one else could buy into the

same franchise in the same area Franchiser support (training, tips, location, etc.)

Franchises

Disadvantages

Large initial investment $$$ Pay ongoing fees to retain right to use name May not be free to run as you wish May be required to follow guidelines

Investigate carefully! Talk with other franchisees (people who own

same franchise) about franchisor (one who sells a franchise) and success

Franchises Continued…

Franchises

Contact the Federal Trade Commission at:

http://business.ftc.gov/selected-industries/franchises-and-business-opportunities

For more info on Franchises…

Already established Owners sell because they want to: change

careers, move, or retire Can eliminate much of the work and expense Location is already chosen Business already known in community Already have loyal customers Investigate first!!!! (Reputation? Equipment?

New Laws? New Competition?

Buying an Existing Business

Ever had a lemonade stand or paper route? Review Business Planning Checklist How to Succeed?

Key quality – Optimism (believing in yourself and your business. Positive attitude!)

Self Starter – one who had initiative to see what needs to be done and do it! Time, Energy, & Interest = Success

Innovative – ability to come up with new ideas Decision-making Skills – must be able to decide on

routine issues & major problems Risk taker (money, self-esteem, respect) Goal setter

Business Planning

Human Resources – include both employees &

customers Material Resources – include the supplies & other

items needed to run a business Financial Resources – refer to the money needed to

start the business and keep it going. Also includes profits.

Use Resources Wisely

One textbook chapter is NOT enough! Community College classes U.S. Small Business Administration (SBA) – agency

providing assistance to small business owners in a number of ways. Est. in 1953 Provides financial, technical, & management

assistance to help start, run, and enlarge a business Offers a start-up kit Can help develop business plan for lending institutes

and applying process

Planning Resources

Offers workshops, seminars/course on:

Marketing Purchasing Planning a small business

Available online at http://www.sbaonline.sba.gov Another information source is

http://www.workingsolo.com Contains links to important topics such as business

planning, management, financial matters, government resources, sales, and marketing.

SBA

What is best for YOU? Answer this first Your business should:

Involve your interest and abilities Relate to your work experience or favorite

hobby Fill needs and wants of consumers in your area

Conduct a survey to determine consumer interests

Investigate

Choosing a Business

Fraud – the act of deceiving or tricking Victims are those who rush into a franchise or

business opportunity by illegal or unethical marketers

What ads or signs have you seen for business opportunities that seem “to good to be true?”

Contact the BBB (Better Business Bureau) to determine if it is a scam and discover any complaints

Avoiding Fraud

Is where you are located important? Keep several factors in mind:

Close to customers Close to suppliers Neighboring businesses Competition Room Capacity Parking facilities Electical and Plumbing Capacity

Location, Location, Location

Keeps costs down Do you know anyone who works from home? Can move later as they grow 41+ million people own businesses from home

(2004) 7.6 million are telecommuters

Telecommuter – a person working from home and maintaining contact via computer, fax, & phone.

Close to 2 million people make over $100k a year working from home (2004)

Work from Home

Caterers Garment Makers Artists Photographers Architects Graphic Designers Consultants Computer

programmers/repairers/engineers/marketers/technical writers

Well Suited Home-Based Businesses

Salary – the same amount every pay period

regardless of hours worked Commission – a percentage of sales paid to a

salesperson No sales = No pay!

Salary vs. Commission

Not committed to pay rent or a lease No travel time No parking expense or problems Can handle home responsibilities too Tax advantages

Advantages of Working from Home

Family concerns may disrupt your business Neighbors may object Traffic concerns Clients may not take your business seriously Clients may feel your worksite is

unprofessional Check with any zoning ordinances Loneliness from working alone

Disadvantages of Working from Home

More than a desk and chair Involves very organized & detailed recordkeeping Tax Accountant or Attorney can assist in recordkeeping

information for: Business-related receipts, bank statements, charge

account statements, mileage logs, and cash receipts Keep personal and business finances separate All records should be kept in locked file cabinet Have electrician check wiring as large equipment can

exceed capacity of regular home wiring. Have good lighting inside & out Light colored walls

Setting Up a Home Office

Are you charging enough or too much? Tips:

Survey others working in same area. Determine highest and lowest acceptable rates.

If your field isn’t crowded, you can charge more In busy season, you may consider raising rates You can charge more for the “can’t live without it!”

items Overhead expenses – any expenses beyond

materials and labor (i.e., rent, utilities, supplies, postage, advertising)

Pricing Your Product/Service

Choose business structure Meet zoning & licensing requirements Obtain financing Maintain accurate financial records Check on insurance policy

Legal & Financial Issues

How to set up your business 3 basic business structures –

Proprietorships, Partnerships, & Corporations Each has advantages and disadvantages

Business Structure

Simplest type of business Least costly structure to form You – sole owner

Gives freedom to run any way you want Makes you entirely responsible

Proprietorship

Has the advantage of giving you someone to

share business responsibilities May be able to borrow more money Must reach agreement(s) Your responsible if something happens to the

partner

Partnership

Easier to raise money Less risk to personal assets Costs more to set up Subject to more taxes Less freedom of action for entrepreneur

Corporation

Zoning Laws – regulate what types of business

activities can be performed in certain areas. License – a certificate showing that you have

been granted permission to practice your occupation.

Alabama Department of Commerce can tell how to register a business

Zoning, Licensing, & Permits

Sources of Financing

Savings Avoid Interest Costs Shows Confidence

Family/Friends Agree to repay principal plus interest on when

Bank Lending Usually difficult

Outside Investors

Financing

Provide detailed business information

Outline product type or service List location(s) Identify Competitors Who your customers are Promotional Plan Specify needs for space, equipment, &

employees List of Financial Needs Future Growth Ability to Repay Loan

Applying for a Loan

Capital expenses – one-time costs needed to

get started Example: Machine

Fixed Expenses – those that must be paid regularly in set amounts Example: Rent payments, Insurance

Flexible Expenses – those that vary from month to month. Example: Utility bills, repairs, advertising costs

Expenses

Assets – items you own.

Examples – cash, stocks, bonds, property Liabilities – all the debts you owe.

Examples – car payments, home loan

Statement of Assets & Liabilities

Good Credit Rating Experience and Knowledge to run business A complete, organized proposal will affect the

loan officer’s decision!

Did you get the loan?

50 % fail within 5 years Lack of Financial Planning – often Record Keeping – it’s the law!

Small Business Failure

Bookkeeping – involves the recording of income

and expenses. Accounting – involves an analysis of the data

you’ve recorded. Type of recordkeeping depends on the business

Store – tracks products Employees – track hours (taxes and expenses) Service – tracks time performing tasks

Receipts – (aka: revenues) include all money you receive from customers for cash and credit sales

Recordkeeping

Way to track receipts Include date, customer’s name, address, items sold,

quantity, price per item, sales tax, and sales total Subtract expenses from receipts to determine profit To determine success compare years Profit Ratio – the percentage of receipts that are

profit (by dividing total profit from total receipts) Main Goal is to PROFIT! Break-Even Point – when income = expenses

Ex. 1st yr with 20% profit ratio, break-even = September

Sales Slip

Lawyer – can set up your business structure, verify

zoning laws and licensing requirements; legal issues Discuss fees up front

Accountant – helps you choose a record keeping system to meet your needs; help with loan applications; handle taxes; analyze books; advise on how to increase profits

Other business owners Local Chamber of Commerce – give references Insurance Agent – protect in event of fire or theft;

liability; disability coverage Look for Small Business Experience

Professional Assistance

Answer “Facts in Review” on pg. 420 #1-14

(all) When finished, turn in your answers! Raise your hand if you have a question. Good Luck!

Turn to pg. 462