Download Business Essentials, 7th Edition Ebert/Griffin

3
chapter
Entrepreneurship, New
Ventures, and Business
Ownership
Business Essentials, 7th Edition
Ebert/Griffin
Instructor Lecture PowerPoints
© 2009 Pearson Education, Inc.
PowerPoint Presentation prepared by
Carol Vollmer Pope Alverno College
All rights reserved. No part of this publication may be reproduced, stored in a
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© 2009 Pearson Education, Inc.
2
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1.
2.
3.
4.
Define small business, discuss its importance to the U.S. economy, and
explain popular areas of small business.
Explain entrepreneurship and describe some key characteristics of
entrepreneurial personalities and activities.
Describe the business plan and the start-up decisions made by small
businesses and identify sources of financial aid available to such
enterprises.
Discuss the trends in small business start-ups and identify the main
reasons for success and failure among small businesses.
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L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:
5. Explain sole proprietorships, partnerships, and
cooperatives and discuss the advantages and
disadvantages of each.
6. Describe corporations, discuss their advantages and
disadvantages, and identify different kinds of
corporations.
7. Explain the basic issues involved in managing a
corporation and discuss special issues related to
corporate ownership.
© 2009 Pearson Education, Inc.
What’s in It for Me?
•
By understanding the material discussed in
this chapter, you’ll be better prepared to:
1. Understand the keys to entrepreneurial success,
including business planning
2. Discuss the reasons for success or failure
3. Evaluate the advantages and disadvantages of
different kinds of ownership
© 2009 Pearson Education, Inc.
What Is a “Small” Business?
• Small Business Defined
– A business that is independent (not part of a larger
business) and that has relatively little influence in its
market.
• The Importance of Small Business in the U.S.
Economy
– Job creation
– Innovation
– Contributions to big business
• Suppliers of specialized services and raw materials
• Sellers of larger firms’ products
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FIGURE 3.2: Small Business by Industry
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Entrepreneurship
• Entrepreneurship
– The process of seeking business opportunities under
conditions of risk
• Entrepreneur
– One who accepts the risks and opportunities of creating,
operating and growing a new business
• Small Business Owner
– A person who independently owns a business that
has relatively little impact in its market
© 2009 Pearson Education, Inc.
Entrepreneurial Characteristics
• Successful Entrepreneurs:
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Are resourceful.
Are concerned about good customer relations.
Desire to be their own boss.
Can deal with uncertainty and risk.
Are open-minded.
Rely on networks, business plans, and consensus.
Have different views on how to succeed, to automate
a business, and when to rely on experience or
business acumen.
© 2009 Pearson Education, Inc.
Starting and Operating a New Business
• Crafting a Business Plan
– Conveys a description of the business strategy for the new
venture and how it will be implemented
– A business plan should address:
• The entrepreneur’s goals and objectives
• The strategies that will be used to obtain them
• The implementation of the chosen strategies
• Preparing a Business Plan
– Setting goals and objectives
– Sales forecasting
– Financial planning
© 2009 Pearson Education, Inc.
Starting the Small Business
• Buying an Existing Business
– Less risk in purchasing ongoing, viable business
• Franchising
– Advantages
• Proven business opportunity for franchisee
• Access to management expertise of franchisor
– Disadvantages
• Start-up costs for franchise purchase
• Ongoing payments to the franchisor
• Management rules and restrictions on the franchisee
© 2009 Pearson Education, Inc.
Starting the Small Business (cont’d)
• Starting from Scratch
– Disadvantage: Higher risk of business failure
– Advantage: Avoids problems of an existing business
• Questions to Be Answered:
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Who and where are my customers?
How much will those customers pay for my product?
How much of my product can I expect to sell?
Who are my competitors?
Why will customers buy my product rather than the
product of my competitors?
© 2009 Pearson Education, Inc.
Financing the Small Business
• Personal Resources
• Loans from Family and Friends
• Bank Loans
• Venture Capital Companies
• Small-Business Investment Companies (SBICs)
• Minority Enterprise Small-Business Investment Companies
(MESBICs)
• SBA Financial Programs
– Guaranteed loans and immediate loan programs
– Management advice (SCORE and SBDCs)
© 2009 Pearson Education, Inc.
Trends in Small-Business Startups
Emergence of
E-commerce
Crossovers from
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Better
Survival Rates
© 2009 Pearson Education, Inc.
Reasons for Failure and Success
• Failure
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Poor management
Neglect
Weak control systems
Insufficient capital
• Success
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Hard work, drive, and dedication
Market demand
Managerial competence
Luck!!!
© 2009 Pearson Education, Inc.
Business Ownership
• Forms of Legal Ownership
– Sole proprietorship: Owned and operated by one person
– Partnership: Sole proprietorship multiplied by the number
of partner-owners
– Corporation
• Choice of Ownership Form
– Based on the entrepreneur’s needs/desires for control,
ownership participation, financing sources, and
appropriateness of the chosen form for the industry in
which the firm will compete
© 2009 Pearson Education, Inc.
Sole Proprietorships
• Advantages:
• Disadvantages:
– Freedom
– Simple to form
– Low start-up costs
– Tax benefits
– Formation of
cooperatives
– Unlimited liability:
Owners are responsible
for all debts of a
business
– Limited resources
– Limited fundraising
capability
– Lack of continuity
© 2009 Pearson Education, Inc.
Partnerships
• Advantages:
• Disadvantages:
– More talent and
money
– More fundraising
capability
– Relatively easy to
form
– Limited liability for
limited partners
– Tax benefits
– Unlimited liability for
general partner
– Disagreements
among partners
– Lack of continuity
© 2009 Pearson Education, Inc.
Alternatives to General Partnerships
• Limited Partnership
– Allows for limited partners who invest money but are
liable for debts only to the extent of their investments
– Must have at least one general (or active) partner, who is
usually the person who runs the business and is
responsible for its survival and growth
• Master Limited Partnership
– Organization sells shares (partnership interests) to
investors on public exchange. Investors are paid back from
profits
– The master partner retains at least 50 percent ownership
and runs the business, while minority partners have no
management voice
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Cooperatives
• Combine the freedom of sole
proprietorships with the financial power
of corporations
• Groups of sole proprietorships or
partnerships agree to work together for
their common benefit
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Corporations
• Corporation
– Firms that have filed papers of incorporation
• Corporations may:
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Be small or large
Sue and be sued
Buy, hold, and sell property
Make and sell products
Commit crimes and be tried and punished for them
Have limited liability for individuals who form them
© 2009 Pearson Education, Inc.
Corporations
• Advantages:
• Disadvantages:
– Limited liability: The
owners’ responsibility
for the debts of a
business is limited to
their investment in a
business
– Double taxation of
dividends
– Fluid control
– Complicated and
expensive to form
– Continuity
– Stronger fundraising
capability
© 2009 Pearson Education, Inc.
Types of Corporations
• Closely Held (Private) Corporation
• Publicly Held (Public) Corporation
• Subchapter S Corporation
• Limited Liability Corporation (LLC)
• Professional Corporation
• Multinational (Transnational) Corporation
© 2009 Pearson Education, Inc.
Managing a Corporation
• Corporate Governance
– The roles of shareholders, directors, and other managers in
corporate decision making and accountability
– Corporate governance is established by the firm’s bylaws
and involves three bodies:
• Stockholders (shareholders): Investors who buy ownership shares
in the form of stock
• The board of directors: Group elected by stockholders to oversee
corporate management
• Corporate officers: Top managers hired by the board to run the
corporation
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Stockholders: Owners of Corporations
• Stock: A share of ownership in a corporation
• Dividends: Profits distributed among stockholders
© 2009 Pearson Education, Inc.
Special Issues in Corporate Ownership
• Joint Ventures and Strategic Alliances:
– Strategic alliance: Two or more organizations collaborate
on a project for mutual gain
– Joint venture: Partners share ownership of a new
enterprise
• Employee Stock Ownership Plans
– Allows employees to own a share of the corporation
through trusts established on their behalf
• Institutional Investors
– Control enormous resources and can buy huge blocks of
stock
© 2009 Pearson Education, Inc.
Special Issues in Corporate Ownership (cont’d)
• Mergers, Acquisitions, Divestitures, and SpinOffs:
– Merger: Two firms combine to create a new
company
– Acquisition: One firm buys another outright
– Divestiture: Strategy whereby a firm sells one or
more of its business units
– Spin-off: A firm sells part of itself to raise capital
© 2009 Pearson Education, Inc.
Key Terms
acquisition
board of directors
business plan
chief executive officer (CEO)
closely held (or private) corporation
cooperative
corporate governance
corporation
divestiture
double taxation
employee stock ownership plan
(ESOP)
entrepreneur
entrepreneurship
franchise
general (or active) partner
general partnership
institutional investor
joint venture
limited liability
limited liability corporation (LLC)
limited partner
limited partnership
master limited partnership
merger
multinational (or transnational)
corporation
© 2009 Pearson Education, Inc.
Key Terms (cont.)
officers
professional corporation
publicly held (or public) corporation
S corporation
small business
Small Business Administration (SBA)
Small Business Development Center
(SBDC)
small-business investment company
(SBIC)
sole proprietorship
spin-off
stockholder (or shareholder)
strategic alliance
tender offer
unlimited liability
venture capital company
© 2009 Pearson Education, Inc.