entrepreneurship new ventures and business ownership

© 2007 Prentice Hall, Inc. All rights reserved.

PowerPoint Presentation by Charlie CookThe University of West Alabama

Business Business EssentialsEssentials

Ronald J. Ronald J.

EbertEbertRicky W. Ricky W.

GriffinGriffin

Business Business EssentialsEssentials

Ronald J. Ronald J.

EbertEbertRicky W. Ricky W.

GriffinGriffin

The Contemporary Business WorldThe Contemporary Business WorldThe Contemporary Business WorldThe Contemporary Business World1111

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ENTREPRENEURSHIP, NEW VENTURES, AND BUSINESS OWNERSHIP

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© 2007 Prentice Hall, Inc. All rights reserved. 3–2

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 S

After reading this chapter, you should be able to:After reading this chapter, you should be able to:1.1. Define Define small businesssmall business, discuss its importance to the , discuss its importance to the

U.S. economy, and explain popular areas of small U.S. economy, and explain popular areas of small business.business.

2.2. Explain entrepreneurship and describe some key Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and characteristics of entrepreneurial personalities and activities.activities.

3.3. Describe the business plan and the start-up decisions Describe the business plan and the start-up decisions made by small businesses and identify sources of made by small businesses and identify sources of financial aid available to such enterprises.financial aid available to such enterprises.

4.4. Discuss the trends in small business start-ups and Discuss the trends in small business start-ups and identify the main reasons for success and failure identify the main reasons for success and failure among small businesses.among small businesses.


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:After reading this chapter, you should be able to:

5.5. Explain sole proprietorships, partnerships, and Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and cooperatives and discuss the advantages and disadvantages of each.disadvantages of each.

6.6. Describe corporations, discuss their advantages and Describe corporations, discuss their advantages and disadvantages, and identify different kinds of disadvantages, and identify different kinds of corporations.corporations.

7.7. Explain the basic issues involved in managing a Explain the basic issues involved in managing a corporation and discuss special issues related to corporation and discuss special issues related to corporate ownership.corporate ownership.


What’s in It for Me?What’s in It for Me?

By understanding the material discussed in this By understanding the material discussed in this chapter, you’ll be better prepared to:chapter, you’ll be better prepared to:1.1. Understand the challenges and opportunities Understand the challenges and opportunities

provided in new venture start-upsprovided in new venture start-ups

2.2. Assess the risks and benefits of working in a new Assess the risks and benefits of working in a new businessbusiness

3.3. Evaluate the investment potential inherent in a new Evaluate the investment potential inherent in a new enterpriseenterprise


What Is a “Small” Business?What Is a “Small” Business?

Small Business DefinedSmall Business Defined A business that is independent (not part of a larger A business that is independent (not part of a larger

business) and that has relatively little influence in its business) and that has relatively little influence in its market.market.

The Importance of Small Business in the U.S. The Importance of Small Business in the U.S. EconomyEconomy Job creationJob creation InnovationInnovation Contributions to big businessContributions to big business

Suppliers of specialized services and raw materialsSuppliers of specialized services and raw materials Sellers of larger firms’ productsSellers of larger firms’ products


Popular Areas of Small-Business Popular Areas of Small-Business EnterpriseEnterprise

Major small-business Major small-business industry groups:industry groups: ServicesServices RetailingRetailing ConstructionConstruction WholesalingWholesaling Finance and insuranceFinance and insurance Manufacturing and Manufacturing and

transportationtransportation


FIGURE 3.2FIGURE 3.2 Small Business by IndustrySmall Business by IndustryFIGURE 3.2FIGURE 3.2 Small Business by IndustrySmall Business by Industry


EntrepreneurshipEntrepreneurship

EntrepreneurshipEntrepreneurship The process of seeking businesses opportunities The process of seeking businesses opportunities

under conditions of riskunder conditions of risk

EntrepreneurEntrepreneur One who accepts the risks and opportunities of One who accepts the risks and opportunities of

creating, operating and growing a new businesscreating, operating and growing a new business

Small Business OwnerSmall Business Owner Does not always have growth of the business as a Does not always have growth of the business as a

primary entrepreneurial goalprimary entrepreneurial goal


Entrepreneurial CharacteristicsEntrepreneurial Characteristics

Successful Entrepreneurs:Successful Entrepreneurs: are resourceful.are resourceful. are concerned for good customer relations.are concerned for good customer relations. desire to be their own boss.desire to be their own boss. can deal with uncertainty and risk.can deal with uncertainty and risk. are open-minded.are open-minded. rely on networks, business plans, and consensus.rely on networks, business plans, and consensus. have different views on how to succeed, to automate have different views on how to succeed, to automate

a business, and when to rely on experience or a business, and when to rely on experience or business acumen.business acumen.


Starting and Operating a New BusinessStarting and Operating a New Business

Crafting a Business PlanCrafting a Business Plan Conveys a description of the business strategy for Conveys a description of the business strategy for

the new venture and how it will be implementedthe new venture and how it will be implemented A business plan should address:A business plan should address:

The entrepreneur’s goals and objectivesThe entrepreneur’s goals and objectives The strategies that will be used to obtain themThe strategies that will be used to obtain them The implementation of the chosen strategiesThe implementation of the chosen strategies

Preparing a Business PlanPreparing a Business Plan Setting goals and objectivesSetting goals and objectives Sales forecastingSales forecasting Financial planningFinancial planning


Starting the Small BusinessStarting the Small Business

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

businessbusiness

FranchisingFranchising AdvantagesAdvantages

Proven business opportunity for franchiseeProven business opportunity for franchisee Access to management expertise of Access to management expertise of

franchisorfranchisor

DisadvantagesDisadvantages Start-up costs for franchise purchaseStart-up costs for franchise purchase Ongoing payments to the franchisorOngoing payments to the franchisor Management rules and restrictions on the Management rules and restrictions on the

franchiseefranchisee


Starting the Small Business (cont’d)Starting the Small Business (cont’d)

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

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

product of my competitors?product of my competitors?


Financing the Small BusinessFinancing the Small Business

Personal ResourcesPersonal Resources

Loans from Family and FriendsLoans from Family and Friends

Bank LoansBank Loans

Venture Capital CompaniesVenture Capital Companies

Small-Business Investment Companies (SBICs)Small-Business Investment Companies (SBICs)

Minority Enterprise Small-Business Investment Minority Enterprise Small-Business Investment Companies (MESBICs) Companies (MESBICs)

SBA Financial ProgramsSBA Financial Programs Guaranteed loans and immediate loans programsGuaranteed loans and immediate loans programs

Management advice (SCORE and SBDCs)Management advice (SCORE and SBDCs)


Trends in Small-Business StartupsTrends in Small-Business Startups

Emergence of Emergence of E-commerceE-commerce

Crossovers fromCrossovers fromBig BusinessBig Business

Opportunities for Opportunities for Minorities & WomenMinorities & Women

GlobalGlobalOpportunitiesOpportunities

BetterBetterSurvival RatesSurvival Rates


Reasons for Failure and SuccessReasons for Failure and Success

FailureFailure Poor managementPoor management NeglectNeglect Weak control systemsWeak control systems Insufficient capitalInsufficient capital

SuccessSuccess Hard work, drive, and Hard work, drive, and

dedicationdedication Market demandMarket demand Managerial competenceManagerial competence Luck!!!Luck!!!


Noncorporate Business OwnershipNoncorporate Business Ownership

Forms of Legal OwnershipForms of Legal Ownership Sole proprietorship: Owned and operated by one Sole proprietorship: Owned and operated by one

personperson Partnership: Partnership: Sole proprietorship multiplied by the

number of partner-owners CorporationCorporation

Choice of Ownership FormChoice of Ownership Form Based on the entrepreneur’s needs/desires for Based on the entrepreneur’s needs/desires for

control, ownership participation, financing sources, control, ownership participation, financing sources, and appropriateness of the chosen form for the and appropriateness of the chosen form for the industry in which the firm will competeindustry in which the firm will compete


Sole ProprietorshipsSole Proprietorships

Advantages:Advantages: FreedomFreedom Simple to formSimple to form Low start-up costsLow start-up costs Tax benefitsTax benefits Formation of Formation of

cooperativescooperatives

Disadvantages:Disadvantages: Unlimited liability: Unlimited liability: Owners

are responsible for all debts of a business

Limited resourcesLimited resources Limited fundraising Limited fundraising

capabilitycapability Lack of continuityLack of continuity


PartnershipsPartnerships

Advantages:Advantages: More talent and More talent and

moneymoney More fundraising More fundraising

capabilitycapability Relatively easy to Relatively easy to

formform Limited liability for Limited liability for

limited partnerslimited partners Tax benefitsTax benefits

Disadvantages:Disadvantages: Unlimited liability for Unlimited liability for

general partnergeneral partner Disagreements Disagreements

among partnersamong partners Lack of continuityLack of continuity


Alternatives to General PartnershipsAlternatives to General Partnerships

Limited PartnershipLimited Partnership Allows for Allows for limited partnerslimited partners who invest money but are liable for who invest money but are liable for

debts only to the extent of their investmentsdebts only to the extent of their investments Must have at least one Must have at least one generalgeneral (or (or activeactive) ) partnerpartner, who is , who is

usually the person who runs the business and is responsible for usually the person who runs the business and is responsible for its survival and growthits survival and growth

Master Limited PartnershipMaster Limited Partnership Organization sells shares (partnership interests) to investors on Organization sells shares (partnership interests) to investors on

public exchange. Investors are paid back from profitspublic exchange. Investors are paid back from profits The master partner retains at least 50 percent ownership and The master partner retains at least 50 percent ownership and

runs the business, while minority partners have no management runs the business, while minority partners have no management voicevoice


CooperativesCooperatives

Combine the freedom of sole proprietorships Combine the freedom of sole proprietorships with the financial power of corporationswith the financial power of corporations

Groups of sole proprietorships or Groups of sole proprietorships or partnerships agree to work together for their partnerships agree to work together for their common benefitcommon benefit


CorporationsCorporations

CorporationCorporation ““An artificial being, invisible, intangible, and existing An artificial being, invisible, intangible, and existing

only in contemplation of the law”only in contemplation of the law”

Corporations May:Corporations May: Sue and be suedSue and be sued Buy, hold, and sell propertyBuy, hold, and sell property Make and sell productsMake and sell products Commit crimes and be tried and punished for themCommit crimes and be tried and punished for them


CorporationsCorporations

Advantages:Advantages: Limited liability: Limited liability: The

owners’ responsibility for the debts of a business is limited to their investment in a business

ContinuityContinuity Stronger fundraising Stronger fundraising

capabilitycapability

Disadvantages:Disadvantages: Double taxation of Double taxation of

dividendsdividends Fluid controlFluid control Complicated and Complicated and

expensive to formexpensive to form


Types of CorporationsTypes of Corporations

Closely Held (Private) CorporationClosely Held (Private) Corporation

Publicly Held (Public) CorporationPublicly Held (Public) Corporation

Subchapter S CorporationSubchapter S Corporation

Limited Liability Corporation (LLC)Limited Liability Corporation (LLC)

Professional CorporationProfessional Corporation

Multinational (Transnational) CorporationMultinational (Transnational) Corporation


Managing a CorporationManaging a Corporation

Corporate GovernanceCorporate Governance The roles of shareholders, directors, and other The roles of shareholders, directors, and other

managers in corporate decision making and managers in corporate decision making and accountabilityaccountability

Corporate governance is established by the firm’s Corporate governance is established by the firm’s bylaws and involves three bodies:bylaws and involves three bodies: StockholdersStockholders ( (shareholdersshareholders): Investors who buy ): Investors who buy

ownership shares in the form of stockownership shares in the form of stock The The board of directors:board of directors: Group elected by stockholders to Group elected by stockholders to

oversee corporate managementoversee corporate management CorporateCorporate officers:officers: Top managers hired by the board to Top managers hired by the board to

run the corporationrun the corporation


Stockholders: Owners of CorporationsStockholders: Owners of Corporations

Stock: A share of ownership in a corporationStock: A share of ownership in a corporation

Dividends: Profits distributed among stockholders


Special Issues in Corporate OwnershipSpecial Issues in Corporate Ownership

Joint Ventures and Strategic Alliances:Joint Ventures and Strategic Alliances: Strategic alliance: Strategic alliance: Two or more organizations Two or more organizations

collaborate on a project for mutual gaincollaborate on a project for mutual gain Joint venture:Joint venture: Partners share ownership of a new Partners share ownership of a new

enterpriseenterprise

Employee Stock Ownership PlansEmployee Stock Ownership Plans Allows employees to own a share of the corporation Allows employees to own a share of the corporation

through trusts established on their behalfthrough trusts established on their behalf

Institutional InvestorsInstitutional Investors Control enormous resources and can buy huge Control enormous resources and can buy huge

blocks of stockblocks of stock


Special Issues in Corporate Ownership (cont’d)Special Issues in Corporate Ownership (cont’d)

Mergers, Acquisitions, Divestitures, and Spin-Mergers, Acquisitions, Divestitures, and Spin-Offs:Offs: Merger: Merger: Two firms combine to create a new Two firms combine to create a new

companycompany Acquisition:Acquisition: One firm buys another outright One firm buys another outright Divestiture:Divestiture: Strategy whereby a firm sells one or Strategy whereby a firm sells one or

more of its business unitsmore of its business units Spin-off: Spin-off: A firm sells part of itself to raise capitalA firm sells part of itself to raise capital


K E Y T E R M SK E Y T E R M S

acquisition acquisition

board of directors board of directors

business plan business plan

chief executive officer (CEO) chief executive officer (CEO)

closely held (or private) closely held (or private) corporation corporation

cooperative cooperative

corporate governance corporate governance

corporation corporation

divestiture divestiture

double taxation double taxation

employee stock ownership plan employee stock ownership plan (ESOP) (ESOP)

entrepreneurentrepreneur

entrepreneurship entrepreneurship

franchise franchise

general (or active) partner general (or active) partner

general partnership general partnership

institutional investor institutional investor

joint venture joint venture

limited liability limited liability

limited liability corporation (LLC) limited liability corporation (LLC)

limited partner limited partner

limited partnership limited partnership

master limited partnership master limited partnership

merger merger

multinational (or transnational) multinational (or transnational) corporationcorporation


K E Y T E R M S (cont’d)K E Y T E R M S (cont’d)

officers officers

professional corporation professional corporation

publicly held (or public) corporation publicly held (or public) corporation

S corporation S corporation

small business small business

Small Business Administration Small Business Administration (SBA) (SBA)

Small Business Development Small Business Development Center (SBDC) Center (SBDC)

small-business investment small-business investment company (SBIC) company (SBIC)

sole proprietorship sole proprietorship

spin-offspin-off

stockholder (or shareholder) stockholder (or shareholder)

strategic alliance strategic alliance

tender offer tender offer

unlimited liability unlimited liability

venture capital companyventure capital company

entrepreneurship new ventures and business ownership

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