bus 100 chapter 3 entrepreneurship, new ventures, and business ownership
TRANSCRIPT
Bus 100
Chapter 3
ENTREPRENEURSHIP, NEW VENTURES, AND BUSINESS
OWNERSHIP
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L E A R N I N G O B J E C T I V E SL E A R N I N G
O B J E C T I V E SAfter reading this chapter, you should be able to:1. Define small business, discuss its importance to the U.S.
economy, and explain popular areas of small business.2. Explain entrepreneurship and describe some key
characteristics of entrepreneurial personalities and activities.3. Describe the business plan and the start-up decisions made
by small businesses and identify sources of financial aid available to such enterprises.
4. Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.
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L E A R N I N G O B J E C T I V E S (cont’d)
L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:
5. Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.
6. Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations.
7. Explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.
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What’s in It for Me?
By understanding the material discussed in this chapter, you’ll be better prepared to:
1. Understand the challenges and opportunities provided in new venture start-ups
2. Assess the risks and benefits of working in a new business
3. Evaluate the investment potential inherent in a new enterprise
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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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Popular Areas of Small-Business Enterprise
Major small-business industry groups: Services Retailing Construction Wholesaling Finance and insurance Manufacturing and
transportation
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Small Business by IndustrySmall Business by Industry
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Entrepreneurship
Entrepreneurship The process of seeking businesses
opportunities under conditions of riskEntrepreneur
One who accepts the risks and opportunities of creating, operating and growing a new business
Small Business Owner Does not always have growth of the
business as a primary entrepreneurial goal
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Entrepreneurial CharacteristicsSuccessful Entrepreneurs:
are resourceful. are concerned for 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 entrepreneur’s goals and objectivesThe strategies that will be used to obtain themThe implementation of the chosen strategies
Preparing a Business Plan Setting goals and objectives Sales forecasting Financial planning
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Starting the Small BusinessBuying an Existing Business
Less risk in purchasing ongoing, viable business
Franchising Advantages
Proven business opportunity for franchiseeAccess to management expertise of franchisor
DisadvantagesStart-up costs for franchise purchaseOngoing payments to the franchisorManagement rules and restrictions on the
franchisee
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Starting the Small Business (cont’d)
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 loans programs
Management advice (SCORE and SBDCs)
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Trends in Small-Business StartupsEmergence of Emergence of E-commerceE-commerce
Crossovers fromCrossovers fromBig BusinessBig Business
Opportunities for Opportunities for Minorities & WomenMinorities & Women
GlobalGlobalOpportunitiesOpportunities
BetterBetterSurvival RatesSurvival Rates
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Reasons for Failure and SuccessFailure
Poor management Neglect Weak control systems Insufficient capital
Success Hard work, drive, and
dedication Market demand Managerial competence Luck!!!
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Noncorporate 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 entrepreneur’s needs/desires for
control, ownership participation, financing sources, and appropriateness of the chosen form for the industry in which the firm will compete
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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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CorporationsCorporation
“An artificial being, invisible, intangible, and existing only in contemplation of the law”
Corporations May: Sue and be sued Buy, hold, and sell property Make and sell products Commit crimes and be tried and
punished for 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
Continuity Stronger
fundraising capability
Disadvantages: Double taxation
of dividends Fluid control Complicated and
expensive to form
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Types of Corporations
Closely Held (Private) CorporationPublicly Held (Public) CorporationSubchapter S Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational (Transnational) Corporation
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Managing a CorporationCorporate Governance
The roles of shareholders, directors, and other managers in corporate decision making and accountabilityCorporate governance is established by the firm’s bylaws and involves three bodies:
Stockholders (shareholders): Investors who buy ownership shares in the form of stockThe board of directors: Group elected by stockholders to oversee corporate managementCorporate 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 gainJoint venture: Partners share ownership of a new enterprise
Employee Stock Ownership PlansAllows employees to own a share of the corporation through trusts established on their behalf
Institutional InvestorsControl enormous resources and can buy huge blocks of stock
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Special Issues in Corporate Ownership (cont’d)
Mergers, Acquisitions, Divestitures, and Spin-Offs:Merger: Two firms combine to create a new companyAcquisition: One firm buys another outrightDivestiture: Strategy whereby a firm sells one or more of its business unitsSpin-off: A firm sells part of itself to raise capital
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T H E E N D !T H E E N D !
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