Starting and Growing Your Business
Falinason inc
Options for Organizing Small and Large Businesses
Objectives 1.
2. 3. 4. 5.
6.
Distinguish between small and large businesses and identify the industries in which most small firms are established. Discuss the economic and social contributions of small business. Compare the advantages and disadvantages of small businesses. Describe how the Small Business Administration assists small-business owners. Explain how franchising can provide opportunities for both franchisors and franchisees. Summarize the three basic forms of business ownership and the advantages and disadvantages of each form.
Objectives
7. 8. 9.
Identify the levels of corporate management. Describe recent trends in mergers and acquisitions. Differentiate among private ownership, public ownership, and collective ownership (cooperatives).
Overview
Variables affecting the organization of your business include:
How easily can you set up this type of organization? How much financial liability can you afford to accept? What financial resources do you have? What strengths and weaknesses do you see in others? What are your own strengths and weaknesses?
Most Businesses Are Small Businesses
What is a Small Business?
A firm that is independently owned and operated, not dominant in its field, and meets industry-specific size standards for income or number of employees. 98 percent have fewer than 100 employees Over 14 million people in the U.S. are earning business income without any employees Almost half the sales in U.S. are made by small businesses
Most Businesses Are Small Businesses Most nonfarming small businesses have been concentrated in retailing in the service industries Typical Small-Business Ventures
Dentists Home Builders Florists, etc
Almost half of small businesses in the U.S. are home based businesses (firms operated from the residence of the business owner)
David vs. Goliath: Business Sectors Most Dominated and Least Dominated by Small Firms
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Major Industries Dominated by Small ď ° Businesses
Contributions or Small Business to the Economy
Creating New Jobs
Creating New Industries
Attracting New Industries
Advantages of a Small Business
Small businesses differ greatly in:
Forms of organization Market positions Staff capabilities Managerial styles Organizational structures Financial resources
These differences usually seem like advantages to small-business owners
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Advantages of Small-Business Ownership
Advantages of a Small Business
Innovation
Example: Start-up business to offer online bookstore shopping and delivery. Typically develop twice as many product innovations per employee as larger firms Also obtain the more patents per sales dollar than larger businesses Key innovations developed by small businesses include the airplane, audio tape recorder, double-knit fabrics, optical scanner, PC, soft contact lenses, and the zipper
Advantages of a Small Business
Lower Costs
Example: Small retailer who can prepare sales flyers on a PC. Small firms may be able to provide goods and services at prices that large firms cannot match Overhead costs are usually minimized Typically, organizations are lean -- with the smallest staffs and few support personnel
Advantages of a Small Business
Superior Customer Service
Example: Free alterations on clothing purchases from a small boutique. Small firms can operate with greater flexibility This allows tailoring of product lines and services to the needs of customers
Advantages of a Small Business
Filling Isolated Niches
Example: Retail store that specializes in selling products designed for left-handed consumers. Large businesses tend to focus on the large segments of the overall market Growth prospects of market niches are too limited, and expenses involved in serving them to great, for large firms This creates opportunity for small firms
Disadvantages of a Small Business
In addition to being vulnerable to economic downturns, primary disadvantages include:
Management Shortcomings Inadequate Financing Government Regulation
Disadvantages of a Small Business
Management Shortcomings
People often go into business with little, if any, business training Owners often hesitate to turn to consultants for advice in areas were they lack knowledge or experience Frequently struggle with “rose-colored-glasses syndrome”
Disadvantages of a Small Business
Inadequate Financing
Too often, new business owners assume a that they will generate enough funds in the first few weeks or months to finance continuing operations Provisions must be made for uneven cash flows Banks often very reluctant to make small business loans
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Sources of Small-Business Financing
Disadvantages of a Small Business
Government Regulation
Small-business owners often complain bitterly of excessive government regulation and red tape Paperwork costs account for billions of smallbusiness dollars each year Taxes are another burdensome expense for small businesses
Increasing the Likelihood of Business Success
Creating a Business Plan
Business plan—written document that provides an orderly statement of a company’s goals, the methods by which it intends to achieve those goals, and standards by which it will measure achievements. Typically includes following components:
Executive summary Introduction Marketing Financials Resumes of principles
Increasing the Likelihood of Business Success ď °
Small Business Administration ď Ž
(SBA)—federal agency that assists small businesses by providing management training and consulting, financial advice, and support in securing government contracts.
Increasing the Likelihood of Business Success
Small Business Administration
Financial Assistance
Guarantees loans
Other Specialized Assistance
Government procurement set-aside programs Information and advice
Increasing the Likelihood of Business Success
Business Incubators
Business incubator—organization that provides low-cost, shared facilities on a temporary basis to small start-up ventures.
Increasing the Likelihood of Business Success
Large Corporations Assisting Small Businesses
Corporations often devise special programs aimed at solving small-business problems Recognition of the size of the smallbusiness market, its growth rate and buying power, and the financial rewards of supporting small businesses
Small-Business Opportunities for Women and Minorities Women-Owned Businesses ď ° Minority-Owned Businesses ď °
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Women-owned and minority-owned businesses are growing much faster than the overall growth in U.S. businesses
Small-Business Opportunities for Women and Minorities
Women-Owned Businesses
Over 9 million women-owned firms Almost 40 percent of U.S. businesses Provide employment for almost 28 million people 1 of every 8 owned by minority women
Small-Business Opportunities for Women and Minorities ď °
Minority-Owned Businesses ď Ž
Growth in number of businesses owned via a African-Americans, Hispanics, and Asian Americans has far out past the growth in number of U.S. businesses overall recently
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Types of Businesses Owned by Racial and Ethnic Minorities
The Franchising Alternative
The Franchising Sector
Franchising—contractual agreement that specifies the methods by which a dealer can produce and market a supplier’s good or service. Franchising growing rapidly U.S. franchises generate $1 trillion in sales annually and employing over 8 million people Franchising is also popular overseas
The Franchising Alternative
Franchising Agreements
Franchisee: small business owner who contracts to sell the goods or service of the franchisor in exchange for some payment Franchisor: owner of the franchise Franchisor typically provides name recognition, building plans, site selection help, accounting systems, and other services
The Franchising Alternative Benefits and Problems of Franchising Advantages include:
A prior performance record Recognizable company name Business model that has proven successful Tested management program Business training
The Franchising Alternative Benefits and Problems of Franchising Disadvantages include:
Expensive franchise fees and future payments The fact that the franchisee is linked to the reputation and management of the franchise The potential unsuitability of the franchisee
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The Latest Trends in Franchising by Industry
Small Business Goes Global Global Environment for Entrepreneurs Growth Strategies
Global reach of the Internet allows companies to reach international markets quickly
Alternatives for Organizing a Business ď °
Forms of Business Ownership
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Comparing the Three Major Forms of Private Ownership
Alternatives for Organizing a Business
Sole Proprietorships
Sole proprietor—form of business ownership in which the company is owned and operated by one person.
Alternatives for Organizing a Business
Partnerships
Partnership—form of business ownership in which the company is operated by two or more people who are co-owners by voluntary legal agreement.
Alternatives for Organizing a Business
Corporations
Corporations—business that stands as a legal entity with assets and liabilities separate from those of its owner(s).
S corporations
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Double Taxation: A Disadvantage of the Corporate Form of Organization
Alternatives for Organizing a Business Changing Legal Structures to Meet Changing Needs Considerations of the appropriate legal structure include:
Personal financial situations and the need for additional funds Management skills and limitations Management styles and capabilities for working with others Concerns about exposure to personal liability
Organizing and Operating a Corporation
Types of Corporations
Domestic—A firm is considered a domestic corporation in the state where it is incorporated Foreign—When company does business in a state other than the one where it has filed incorporation papers, it is registered as a foreign corporation in each of those states Alien—A firm incorporated in one nation that operates in another is known as an alien corporation where it operates
Organizing and Operating a Corporation
The Incorporation Process
Where to Incorporate The Corporate Charter Articles of Incorporation
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Levels of Management in a Corporation
Organizing and Operating a Corporation
Corporate Management
Stockholders—person or organization who has bought shares of stock in a corporation and is entitled to some of its profits.
Closed or Closely Held Publicly Held
Organizing and Operating a Corporation
Corporate Management
Stock Ownership and Stockholder Rights
Preferred stock owners have limited voting rights; receive dividends before others Common stock owners have voting rights but only residual claims on assets and are the last to receive any income distributions
Organizing and Operating a Corporation
Corporate Management
Board or Directors—elected governing body of a corporation.
Sets policy, authorizes major transactions, and hires and supervises the CEO
Corporate Officers and Managers
Make most major corporate decisions
Organizing and Operating a Corporation
Employee-Owned Corporations
Employee ownership: where workers buy shares of stock in the company that employees them
Corporate organization stays the same Most stockholders are also employees
Organizing and Operating a Corporation
Not-for-Profit Corporations
Organizations that pursue objectives other than returning profits to owners Include:
Museums Libraries Religious and human-service organizations Zoos Thousands of other groups
When Businesses Join Forces
Mergers and Acquisitions (M&A)
Merger—combination of two or more firms to form one company. Acquisition—procedure in which one firm purchases the property and assumes the obligations of another.
Vertical Merger Horizontal Merger Conglomerate Merger
When Businesses Join Forces ď °
Joint Ventures: Specialized Partnerships ď Ž
Joint Venture: a partnership between companies formed for a specific undertaking
Public and Collective Ownership
Public Ownership
When a unit or agency of government owns and operates an organization
Government-Owned Corporations
Used When:
Private investors are not willing to invest in highrisk projects When private ownership has failed Operating public companies can be used to foster competition
Public and Collective Ownership ď °
Customer-Owned Businesses: Cooperatives ď Ž
Cooperative: an organization whose owners join forces to collectively operate all or part of the functions in their industry
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