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**

and Starting a Small Business

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Nickels

McHugh

McHugh

McGraw-Hill/Irwin Understanding Business, 8e

2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

CHAPTER

* Entrepreneurship

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Entrepreneurship
Today, young people will not have the traditional 30-year career in one job. This enhances the appeal of starting a small business. Colleges are responding by offering more courses on entrepreneurship. ENTREPRENEURSHIP is accepting the risk of starting and running a business.
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Entrepreneurship
Reasons why people are WILLING TO TAKE THE RISKS of business ownership include:
Opportunity Profit Independence Challenge
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Entrepreneurship
OPPORTUNITY. PROFIT INDEPENDENCE
Many entrepreneurs dont enjoy working for someone else.

CHALLENGE
Some believe that entrepreneurs are excitement junkies who flourish on taking risks.
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Who Starts New Businesses?

AGE AT START-UP

18 - 24 25 - 34 35 - 44 45 - 54 55+

8% 71% 13% 6% 2%
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Entrepreneurial Attributes
Self-Directed & SelfDisciplined Self-Nurturing Action-Oriented Highly Energetic Tolerant of Uncertainty
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Entrepreneurship
Entrepreneurial Teams
is a group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market a new product.

Micropreneurs and Home-Based Businesses

are entrepreneurs willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they want to do, and offers them a balanced lifestyle.
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Entrepreneurship
Web-Based Businesses
Online sales in 2005 were over $165 billion. Numerous sites help entrepreneurs set up online stores

Intrapreneurs
are creative people who work as entrepreneurs within corporations. By using companys existing resources human, financial, and physicalthey launch new products and generate new profits.

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Reasons for Growth of Home-Based Businesses

Technology Downsizing Attitudes Tax Advantages

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Most Common Types of Home-Based Businesses

Sales & Distribution 10% Arts/Design Creative 13% Personal Svcs. 14%
Source: Independent Insurance Agents of America

Financial & Real Estate 5%

Bldg. Trades 31% Bus. Services 27%

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Government & Entrepreneurship

The government passed the IMMIGRATION ACT OF 1990 to encourage more entrepreneurs to come to the United States. Enterprise Zones are specific geographic areas to which government try to attract private business investment by offering lower taxes and other government support. Incubators are centers that offer low-cost offices with basic business services (such as accounting, legal advice, and secretarial help.) Incubators help companies survive because they provide assistance in the CRUCIAL EARLY DEVELOPMENT STAGE.
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What is Small Business?

Independently Owned
Not Dominant in Its Field Meet Certain Standards of Size (Employees, Annual Receipts)
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SMEs in Turkey
Small and medium-sized enterprises (SMEs) constitute a major part of the Turkish economy, accounting for a large proportion of the country.s businesses and total employment.

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SMEs in Turkey

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KOSGEB
Resource and advocate for small business provides:
Financial assistance Training Variety of loan programs

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Two Types Small Business

Lifestyle Business
There are two distinct types of small businesses. Lifestyle businesses, firms built around the personal and financial needs of an individual or family, constitute 80 to 90 percent of all small businesses in America. They are started to provide the
owner with a comfortable life

High-Growth Ventures
High-growth ventures are small simply because theyre new and aim to outgrow their small-business status as quickly as possible. They are often formed by a team, which obtains a sizable supply of capital to introduce new products or services to a large market.

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Typical of Small Businesses

Fewer products or services. Focus is on a narrow group of customers. In close contact with their markets. Tend to be more open minded. Willing to try new things. They are the balance and stability elements of the economic and social systems They are the main supporters and complementary to the large scale industry They can adapt to the changes and diversifications in demand, more easily. By using labor-intensive technology and employing less skilled employees, they contribute to overcome the unemployment They realize more production and product mix with less investment

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Small Businesses and Innovation

Tend to be more innovative. Make decisions faster. Owners are more accessible. Greater opportunities for employees.

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Three Factors Contributing to the Number of Small Businesses

Technology. Increase in women and minority owners.

Corporate downsizing and outsourcing.

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Small businesses start with an idea that can be developed.

A BUSINESS PLAN is a detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s).
A business plan forces potential smallbusiness owners to be SPECIFIC about the products and services they intend to offer.

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The Basic Business Plan

I. The Business A. Description of business B. Marketing II. Financial Data

A. Loan applications
B. Capital equipment and supply list C. Balance sheet

C. Competition
D. Operating procedures E. Personnel

D. Breakeven analysis
E. Pro-forma income projections (profit & loss statements) Three-year summary Detail by month, first year Detail by quarters, second and third years Assumptions upon which projections were based F. Pro-forma cash flow

F. Business insurance
G. Financial data

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Business Ownership Options

Start from scratch Buy an existing business Franchise

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Starting A New Business

ADVANTAGES
Control over your own destiny. Ability to reach your full potential. Unlimited profits. Recognition for your efforts. Doing what you enjoy.

DISADVANTAGES
Uncertainty of income. Risk of losing your entire investment. Long hours and hard work. Complete responsibility.

High levels of stress.

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Three Basic Franchises

1. Product franchise
give you the right to sell trademarked goods, which are purchased from the franchisor and resold such as car dealers and gasoline stations

2. Manufacturing franchise
such as soft-drink bottlers gives you the right to produce and manufacture the manufacturers products, using supplies purchased from the franchisor such as McDonalds or Wendys give you the right to use the company name and business methods.

3. Business format franchise

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Questions to Ask About A Franchise Agreement

1.What does the initial fee cover? 2.How are royalties calculated and paid? 3.Are trademarks and names legally protected? 4.Who provides and pays for advertising and promotional materials? 5.Who selects the location for the business?

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Questions to Ask About A Franchise Agreement

6. Is your territory exclusive? 7. Do you have right of first refusal on additional franchises in nearby locations? 8. Do you have to purchase equipment and supplies from the franchiser? 9. How can the franchise be terminated? 10. Can the franchise be assigned to heirs?

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Going Out of Business Reasons

Management incompetence. Lack of industry experience. Inadequate financing. Poor business planning.

Unclear or unrealistic goals.

Failure to attract and keep target customers. Uncontrolled growth.

Inappropriate location.
Poor inventory and financial controls. Inability to make the entrepreneurial transition.

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Where Did They Start?

Hallmark
WilliamsSonoma Estee Lauder Walt Disney

YMCA room
Abandoned Hardware Store Vacant Former Restaurant Created Mickey in a Garage

Source: World Features Syndicate

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Early Sales of Well-Known Companies

Johnson & Johnson Cyrus McCormick $3,000 Worth of Band-Aids 1st Year Sold No Reapers 1st 10 Years

Subway
Burtons Snowboards Bose

312 Sandwiches 1st Day

Sold One 1st Year Sold 40 Speakers 1st Year (today #1 in market)
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Source: World Features Syndicate

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Managing a Small Business

Business Plan Adequate Funding
Lenders/Investors Angels Venture Capitalists

Professional Advice/Help
SBA and SBIC Program Lawyers, Loan Officers, Insurance Agents SCORE Local College/universities

Know Your Customer Manage Human Resources Keep Good Records

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Reasons for a Banker To Say No

I dont know enough about you or your business. You havent clearly stated why you need the money.
Your numbers dont support the loan request. Your collateral is lacking.

Your business does not support the loan on its own merits.
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