Ebert Griffin PP04

7/27/2019 Ebert Griffin PP04

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Fourth Edition

Copyright 2003 Prentice Hall, Inc.

PART 1 . . . . . . . . . . . . . . . . . . . . . . . .

Understanding the Contemporary

Business Environment


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Copyright 2003 Prentice Hall, Inc. 4 - 2

Chapter 4

Entrepreneurship and

Small Business


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Entrepreneurs are simply those

who understand that there is littledifference between obstacle and

opportunity and are able to turn

both to their advantage.

~ Victor Kiam


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Key Topics

Small business and its importance in the economy

Sole proprietorships, partnerships, and corporations

Creating and managing corporations

Corporate trends and issues

Starting and funding a small business

Pros and cons of franchising


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What Is Small Business?

Independently owned andmanaged business that does

not dominate its market


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Job Creation

Innovation

Importance to

Big Businesses

Small business plays a critical role

in the U.S. economy.


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The Labor Force Reflects the

Importance of Small Business

86.09

11.00 2.00

0.20 0.10

Perc

entageofAllU.S.B

usinesses

Total Employees

Under

20

20-

99

100-

499

500-

1000

1000 or

more

25.60 29.10 25.50

7.10

12.70

PercentageofAllU.S.

Workers

Total Employees

Under

20

20-

99

100-

499

500-

1000

1000 or

more



Popular Areas of Small Business Enterprise

Services

Retailing

ConstructionFinancial

Insurance

Wholesaling

Transportation

Manufacturing

Services

37.6%Retailing

22.7%

Manufacturing

5%Finance &

Insurance

10%

Construction

10%

Transportation

5%

Other

1.7%

Wholesale8%



Types of Business Organizations

Type of Business

73%7% 20%

Sole Proprietorship Partnership Corporations

Sales Revenue

5%

6%

89%


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Comparative Summary: Three Forms of Business

Business

Form Liability Continuity Management

Investment

Sources

Personal,

limited

Ends with death

or decision of

owner

Personal,

unrestricted

Personal

Personal,

unlimited

Ends with death

or decision of

any partner

Unrestricted or

depends on

partnership

agreement

Personal by

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

stock

Proprietorship

General

Partnership

Corporation




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 Liability

Legal principle holding owners responsible

for paying 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 Liability

Legal principle holding owners responsible

for paying off all debts of a business



When two men in business always

agree, one of them is unnecessary.

William Wrigley Jr.

Remember

ButAn exit plan is still crucial!



What is a Corporation?

An artificial being, invisible, intangible, and

existing only in contemplation of the law.



Advantages:

Limited Liability

Continuity

Stronger fundraising

capability

Corporations

Disadvantages:

Double Taxation

Fluid control

Complicated and

expensive to form



Types of Corporations

Closely Held (Private) Corporation

Publicly Held (Public) Corporation

S Corporation

Limited Liability Corporation (LLC)

Professional Corporation

Multinational or Transnational Corporation



Stock: Share of ownership in a corporation

Common Stock

Preferred Stock

StockholdersOwners of Corporations


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Corporate Governance Hierarchy

Officers

Board of Directors

Stockholders



Joint Ventures &

Strategic Alliances

Special Issues in Corporate Ownership

Employee Stock

Ownership Programs

(ESOPS)

Institutional

Ownership



Mergers &

Acquisitions

(M&As)

Special Issues in Corporate Ownership

Divestitures& Spin-offs

Mergers &

Acquisitions

(M&As)

Divestitures& Spin-offsDivestitures& Spin-offs



Entrepreneurship vs. Small Business

Entrepreneur: Accepts the

risks and opportunities of

creating, operating andgrowing a new business

Small Business Owner:

Does not have plans for growth



Trends in Small Business Start-ups

Emergence of

E-commerce

Crossovers From

Big Business

Opportunities for

Minorities & Women

GlobalOpportunities

Increased

Survival Rates



E-commerce Continues to Grow Rapidly

$2,444

$4,828

$17,387

$7,924

$12,090

$0

$2,000

$4,000

$6,000

$8,000

$10,000$12,000

$14,000

$16,000

$18,000

$20,000

1997 1998 1999 2000 2001

Year

Percentage



Reasons for Success and Failure

Reasons for Failure

Poor management

Neglect

Weak control systems

Insufficient capitalReasons for Success

Hard work, drive,dedication

Market demand

Strong management

Luck!!!


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Getting Started

Buying an

ExistingBusiness

Starting

FromScratch


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Financing the Small Business

Personal resources

Loans

Venture capital companies

Small-business investment companies

Small Business Association (SBA)

Financial aid and management advice


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FRANCHISING

Advantages

Proven business

opportunity

Access tomanagement

expertise

Disadvantages

Start-up costs

On-going

payments

Management rules

and restrictions

An Ownership Opportunity


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Chapter Review

Define small business and explain its importance to theU.S. economy.

Describe sole proprietorships, partnerships, and

corporations, and explain the advantages anddisadvantages of each.

Identify the different types of corporations.

Describe the start-up decisions made by smallbusinesses and the potential sources of financial aidand management advice.

Identify the advantages and disadvantages offranchising.

Ebert Griffin PP04

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