PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 3 Understanding Entrepreneurship and Small Business

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookCopyright © 2005 Prentice Hall, Inc.Copyright © 2005 Prentice Hall, Inc.

All rights reserved. All rights reserved.

Chapter 3Chapter 3

Understanding Understanding EntrepreneurshiEntrepreneurshi

p and Small p and Small BusinessBusiness

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 3–2

Key Topics

• Small business and its importance in the economy

• Entrepreneurship versus small business• Starting and funding a small business• Sole proprietorships, partnerships, and

corporations• Creating and managing corporations• Corporate trends and issues


What Is “Small Business”?

• Independently owned and managed business that does not dominate its market


Job CreationJob CreationJob CreationJob Creation

InnovationInnovationInnovationInnovation

Importance to Big Importance to Big BusinessesBusinesses

Importance to Big Importance to Big BusinessesBusinesses

Small business plays a critical role in the U.S. economy.


“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”

—Victor Kiam


Entrepreneurship vs. Small Business

Entrepreneur:

Accepts the risks and opportunities of creating, operating and growing a new business.

Small Business Owner:Does not have plans for growth.


Getting Started

Starting From Starting From ScratchScratch

Buying an Buying an Existing BusinessExisting Business


Financing the Small Business

• Personal resources• Loans• Venture capital companies• Small-business investment companies• Small Business Association (SBA)

Financial aid and management advice


Franchising: An Ownership OpportunityAn Ownership Opportunity

AdvantagesAdvantagesProven businessProven business

opportunityopportunity

Access toAccess to

managementmanagement

expertiseexpertise

AdvantagesAdvantagesProven businessProven business

opportunityopportunity

Access toAccess to

managementmanagement

expertiseexpertise

DisadvantagesDisadvantagesStart-up costsStart-up costs

On-going paymentsOn-going payments

Management rulesManagement rules

and restrictionsand restrictions

DisadvantagesDisadvantagesStart-up costsStart-up costs

On-going paymentsOn-going payments

Management rulesManagement rules

and restrictionsand restrictions


Trends in Small Business Start-ups

Emergence of Emergence of E-commerceE-commerce

Crossovers FromCrossovers FromBig BusinessBig Business

Opportunities for Opportunities for Minorities & WomenMinorities & Women

GlobalGlobalOpportunitiesOpportunities

IncreasedIncreasedSurvival RatesSurvival Rates


Reasons for Success and Failure

• FailurePoor managementNeglectWeak control systems Insufficient capital SuccessSuccess

• Hard work, drive, Hard work, drive, dedicationdedication

• Market demandMarket demand• Strong managementStrong management• Luck!!!Luck!!!

SuccessSuccess• Hard work, drive, Hard work, drive,

dedicationdedication• Market demandMarket demand• Strong managementStrong management• Luck!!!Luck!!!


Sole Proprietorships

Advantages:• Freedom• Simple to form• Low start up costs• Tax benefits

Disadvantages:• Unlimited Liability• Limited resources• Limited fundraising

capability• Lack of continuity

Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible for Legal principle holding owners responsible for

paying off all debts of a businesspaying off all debts of a business

Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible for Legal principle holding owners responsible for

paying off all debts of a businesspaying off all debts of a business


Partnerships

Advantages:• More talent and money• More fundraising

capability• Relatively easy to form• Tax benefits

Disadvantages:• Unlimited liability• Disagreements among

partners• Lack of continuity

Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible Legal principle holding owners responsible

for paying off all debts of a businessfor paying off all debts of a business

Unlimited LiabilityUnlimited LiabilityLegal principle holding owners responsible Legal principle holding owners responsible

for paying off all debts of a businessfor paying off all debts of a business


What is a Corporation?

• “An artificial being, invisible, intangible, and existing only in contemplation of the law.”


Corporations

Advantages:• Limited Liability• Continuity• Stronger fundraising

capability

Disadvantages:• Double taxation• Fluid control• Complicated and

expensive to form


Types of Corporations

• Closely Held (Private) Corporation

• Publicly Held (Public) Corporation

• Subchapter S Corporation

• Limited Liability Corporation (LLC)

• Professional Corporation

• Multinational or Transnational Corporation


Corporate Governance Hierarchy

OfficersOfficers

Board of DirectorsBoard of Directors

StockholdersStockholders


Three Forms of Business

BusinessBusinessFormForm

Liability Continuity ManagementInvestment Investment

SourcesSources

Personal, limited

Ends with death or decision of owner

Personal, unrestricted

PersonalPersonal

Personal, unlimited

Ends with death or decision of any partner

Unrestricted or depends on partnership agreement

Personal by Personal by partner(s)partner(s)

Capital invested

As stated in charter, perpetual or for specified period of years

Under control of board of directors, which is selected by stockholders

Purchase of Purchase of stockstock

ProprietorshipProprietorship

General General PartnershipPartnership

CorporationCorporation

Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 4 - 4 - 1818


Chapter Review

• Define small business and explain its importance to the U.S. economy.

• Distinguish between entrepreneurship and small business.

• Describe the start-up decisions made by small businesses and the potential sources of financial aid and management advice.

• Describe sole proprietorships, partnerships, and corporations, and explain the advantages and disadvantages of each.

• Identify the different types of corporations.

Documents

PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 3 Understanding Entrepreneurship and Small Business