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FHF Ferrell Hirt Ferrell BUSINESS A CHANGING WORLD EIGHTH EDITION Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Page 1: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF

Ferrell Hirt Ferrell

BUSINESSA CHANGING WORLD

EIGHTH EDITION

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Page 2: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

part

CHAPTER 5 Small Business, Entrepreneurship, and Franchising

2

CHAPTER 4 Options for Organizing Business

FHF

5-2

Starting and GrowingA Business

Page 3: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

[ ]FHF

Entrepreneurship

5-3

The process of creating and managing a business to

achieved desired objectives

Page 4: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF

What is Small Business?

“Smallness” is relative Small business is any independently owned

and operated business, not dominant in its competitive area

Employs less than 500 people

5-4

Page 5: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Impact of Small Businesses

5-5

Page 6: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Small Businesses Represent

64% of new net jobs, annually, created in the last 15 years

99.7% of all businesses employ fewer than 500 people

89% of businesses employ fewer than 19 people

5-6

Page 7: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Small Business Innovation

Small businesses represent 55% of all innovations Airplane

Audio tape recorder

Double-knit fabric

Fiber-optic examining equipment

Heart valve

Optical scanner

Personal computer

Soft contact lenses

Zipper … and much more

5-7

Page 8: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Traits of Successful Entrepreneurs

5-8

Page 9: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Popular Industries for Small Business

Especially attractive industries to entrepreneurs: Retailing and wholesaling

Services

Manufacturing

High technology

5-9

Page 10: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Retailing and Wholesaling

Selling directly to consumers Music stores

Sporting-goods shops

Dry cleaners

Boutiques

Drugstores

Restaurants

Hardware stores

5-10

Page 11: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Services and Manufacturing

Services Service sector is 80% of U.S. jobs

Attracts individuals whose skills are not required by large firms

Manufacturing Small manufacturers excel at customization

The Malcolm Baldridge National Quality Award rewards innovative small manufacturing firms

5-11

Page 12: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF

High Technology

Businesses that depend heavily on advanced scientific and engineering knowledge. 40% of high-tech jobs are with small businesses

The government offers small business grants for high-tech companies

5-12

Page 13: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Small Business Ownership

5-13

Advantages Disadvantages

Independence High stress level

Costs High failure rate50% of all new businesses fail within the first 5 years

Flexibility UndercapitalizationLack of funds to operate normally

Focus Managerial inexperience or incompetence

Reputation Inability to cope with growth

Page 14: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Starting a Business

Start with a concept or general idea Create a business plan Devise a strategy to guide planning &

development Make decisions

• Form of ownership

• Financing

• Acquire existing business or start new business?

• Buy a franchise

5-14

Page 15: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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The Business Plan

A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Acts as a guide and reference document. Explanation of the business

Analysis of competition

Income/Expense estimates

5-15

Page 16: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Forms of Business Ownership

Sole ProprietorshipPartnershipCorporation

5-16

Page 17: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Financial Resources

Provide your own personal capital Cash money

Obtain capital

Financing options Loans

Stocks

Equity financing

5-17

Page 18: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

[ ]FHF

Equity Financing

Selling or borrowing against the value of an asset such as an

(automobile, insurance policy, savings account) to obtain funds

to operate a business

5-18

Page 19: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

[ ]FHF

Venture Capitalists

Persons/organizations that agree to provide funding for a new business in exchange for an ownership interest or stock. Usually requires a sharing of

ownership/control

5-19

Page 20: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

[ ]FHF

Debt Financing

Borrowing financial resources typically from a bank or lending

institution– often collateral is needed

5-20

Page 21: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

[ ]FHF

Line of Credit

An agreement by which a financial institution promises to lend a

business a predetermined sum on demand

5-21

Page 22: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Starting from Scratch vs. Buying an Existing Business

Starting from scratch can be expensive and will require a lot of promotional efforts to familiarize customers with the business Existing businesses have the advantage of a built-in

network of customers, suppliers and distributors

Reduces guesswork

Involves taking on any problems the business already had

5-22

Page 23: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Franchising

A license to sell another’s products or to use another’s name in business, or both Franchiser

The company that sells a franchise

Franchisee The purchaser of a franchise

5-23

Page 24: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Franchises

5-24

Advantages DisadvantagesTraining & support Fees and profit sharing

Brand name appeal Standardized operations

National advertising Restrictions on purchasing

Financial assistance Limited product line

Proven products Possible market saturation

Greater chance for success Less freedom in decisions

Page 25: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF

Help for Small Business Managers

Organizations and programs exist to help small businesses

Small Business Administration Small Business Development Centers

Service Corps of Retired Executives

Active Corps of Executives

Small Business Institutes

U.S. and Local Departments of Commerce

Other small businesses

5-25

Page 26: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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The Future for Small Business

Demographic Trends The Baby Boomers

Generation Y (Millennials)

Immigrants and shifting demographics

5-26

…continued on next page

Page 27: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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The Future for Small Business

Technological & Economic Trends Internet usage continues to increase

Increase in service exports

Economic turbulence

Deregulation of the energy market & alternative fuels

5-27

Page 28: FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

FHF

Big Businesses Acting Small

Common Approaches Large firms emulate smaller ones to improve

bottom line

Downsizing (Rightsizing)• Acting small from inception – Southwest Airlines

Intrapreneurs• Individuals in large firms who take responsibility

for the development of innovations within the organization

5-28


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