Small business firm that is independently owned not dominant in its field meets size standards for income employees Chapter 5 Options for Organizing Small and Large Businesses Most Businesses are Small Businesses What is a Small Business o Manufacturing considered small if fewer than 500 workers o Wholesalers considered small is fewer than 100 workers o Retailers considered small if they generate up to 6M o Agriculture considered small if sales go up to 750k Typical Small Business Ventures Small size of certain businesses allows them to cater to customers in ways that big companies cannot Small businesses provide most jobs in construction agricultural serves wholesale trade retail trade Almost half of small businesses in the US are home based businesses operated from owner s residence Contributions of Small Business to the Economy Creating New Jobs Small business are more likely than large businesses to employ youngest and oldest workers Small businesses contribute to the economy by hiring workers who have difficulty finding jobs at larger firms Small business sector gives entrepreneurs an outlet for developing their ideas and creating new industries Corporate downsizing has created a demand for other businesses to perform activities previously handled by company Small businesses are much better than large businesses at developing new and better goods and services Small firms develop twice as many new product innovations per employee as large firms 13 times more patents Creating New Industries employees Innovation Why Small Businesses Fail Management Shortcomings Business founders often possess great strengths in specific areas such as marketing or interpersonal relations Owners of small service businesses find that they must concentrate on their most profitable customers Warnings when starting a business Learn the basics recognize your own limitations Inadequate Financing owner must set aside enough funds to cover cash shortfalls during first several months small businesses rely less on debt financing than large firms trade credit credit cards loans with less money to spend on employees successful small companies need to be more creative Government Regulation paperwork costs alone account for billions of small business dollars each year congress sometimes exempts the smallest companies from certain regulations taxes are another burdensome expense for a small business business plan written document that provides an orderly statement of a companies goals methods to achieve goals and Increasing the Likelihood of Small Business Success Creating a Business Plan company s standards o o o o executive summary who what why when where how introduction concept purpose objectives financial marketing sections target market marketing plan resumes of principals obtain financing Small Business Administration small business administration SBA federal agency that aids small businesses by providing management training and consulting financial assistance and support in securing gov t contracts Financial Assistance from the SBA o Direct SBA loans are available in only a few special situations national disaster insurance etc o Microloans given for up to 35k to start up firms o Small Business Investment Companies SBICs run by experienced venture capitalists o Another financial resource is Active Capital matches entrepreneurs with investors Other Specialized Assistance o Set aside programs 23 of certain gov t contracts are designated for small business o SBA delivers a variety of other services to small businesses provides info thru website o SBA offer free online courses sponsors training courses provides online library Business Incubators Business incubator organization that provides temporary low cost shared facilities to small start up ventures Over 1k business incubator programs operate in US majority run by not for profits Operating in an incubator gives entrepreneurs easy access to basic needs phones human resources Small Business Opportunities for Women Minorities Women Owned Business o More than 50 of US businesses are women owned 25 of those are minority women o Some have unique business idea others decide to strike out when they get frustrated other leave to avoid glass ceiling Minority Owned Businesses o Fastest growth among women owned firms is occurring in wholesale trade social assistance entertainment services o Minority entrepreneurs tend to start businesses on a smaller scale and have more difficulty finding investors than other entrepreneurs rely less on bank credit because they have a harder time getting loans from banks o Franchising Alternative The Franchising Sector or service Franchising Agreements Franchising contractual agreement that specifies the methods by which a dealer can produce and market a supplier s good Franchised businesses account for nearly 50 of all retail sales Franchisee individual business purchasing the franchise Franchisor small business owner who contracts to sell the good service of the supplier Franchisor typically provides building plans site selection help managerial systems Franchisor provides name recognition for the franchisee advertising Franchisee agreements often specify that the franchisee will receive materials equipment and training from the franchisor Benefits and Problems of Franchising Advantages prior performance record recognizable name successful business model tested program training Disadvantages franchise fees can be very expensive franchise is linked to the reputation of the franchise 1 mistake could keep a customer away franchise agreement can be overly restrictive Alternatives for Organizing a Business Sole Proprietorships company is owned operated by one person One owner Unlimited personal liability Adv owner retains all profits easy to form owner has flexibility Dis unlimited liability financial limitations management deficiencies lack of continuity Partnership company owned by 2 people who are c owners by legal agreement 2 owners Unlimited liability Adv easy to form complementary management skills more financial capacity Dis unlimited liability interpersonal conflicts lack of continuity difficult to dissolve Corporation legal entity with assets and liabilities separate from owner Unlimited owners shareholders Limited liability Adv limited liability specialized skills financial capacity economies of large scale operations Dis difficult costly to form dissolve tax disadvantages legal restrictions taxation of corporations
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