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Intro to Business 101 CH. 5 Small Business, Entrepreneurship, and Franchising

innovation
An improvement of an existing technological product, system, or method of doing something.
entrepreneurship
The process of creating and managing a business to achieve desired objectives. Organizational abilities and risk taking involved in starting a new business or introducing a new product to consumers.
small business
Any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people
small business administration (SBA)
an independent agency of the federal government that offers managerial and financial assistance to small businesses
Job Creation
The development of an employment position that matches your skills with the needs of an organization
Industries That Attract Small Business
Retailing and Wholesaling, Services, Manufacturing, and High Technology
Retailing and Wholesaling, Services, Manufacturing, and High Technology
These fields are relatively easy to enter and require low initial financing.
Retailing and Wholesaling
retailers acquire goods from producers or wholesalers and sell them to consumers
Services
The service sector includes businesses that do not actually produce tangible goods. The service sector accounts for 80% of U.S. jobs, excluding farm workers.
Manufacturing
provides unique opportunities for small businesses.
High Technology
Is a broad term used to describe businesses that depend heavily on advanced scientific and engineering knowledge
Advantages of Small -Business Ownership
Independence, Costs, Flexibility, Focus, Reputation
Independence
One of the leading reasons that entrepreneurs choose to go into business for themselves. Being able to be your own boss.
Costs
An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something. The money spent for the inputs used in producing a good or service.
Flexibility
An operation’s ability to respond efficiently to changes in products, processes, and competitive environments. Adapt to changing market demands.
Focus
Complete attention to the execution of a skill.
Reputation
A high opinion that people hold about somebody or something. (Ex) someone that shows a strong commitment to customer satisfaction.
Disadvantages of Small-Business Ownership
High stress levels, High failure rate, Under-capitalization, Managerial Inexperience or incompetence, and Inability to cope with growth.
High Stress Level
Worries about new equipment,expanding inventory, rent increases , competition, and changing market condition may contribute to…
High Failure Rate
burdens imposed by government regulation, insufficient funds to withstand slow sales, and vulnerability to competition from larger companies.
Undercapitalization
the lack of funds to operate a business normally
Managerial Inexperience or Incompetence
not having the knowledge or experience in the business industry before moving forward,
Inability to Cope with Growth
Poorly managed growth probably affects a company’s reputation more than anything else, at least initially.
Starting a Small Business
The Business Plan, Forms of Business Ownership, Financial Resources, Approaches, Help for Business Managers
Business Plan
a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.
Forms of Business Ownership
sole proprietorship, partnership, corporation
Financial Resources
Capital investments to support ongoing and long-term operations
Equity Financing
Money raised from within the firm, from operations or through the sale of ownership in the firm (stock).
Venture Capitalist
Persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock
Debt Financing
Funds raised through various forms of borrowing that must be repaid
collateral
Anything of value belonging to the borrower that is pledged to the lender to guarantee that the loan will be repaid.
mortgage
A legal document used to secure the performance of an obligation, in which the borrower or mortgagor agrees to pledge property to secure the debt represented by the promissory note. (A contract).
line of credit
A financial arrangement between a firm and a bank in which the bank pre-approves credit up to a specified limit, provided that the firm maintains an acceptable credit rating
trade credit
A supplier of goods or services provides credit to a customer, allowing the customer to pay for the goods or services at a later date.
bartering
trading their own products for the goods services offered by other businesses
Approaches to starting a Small Business
Starting from scratch versus buying an existing business, franchising
starting from scratch versus buying an existing business
avoids problems associated with previous owners, freedom to choose suppliers, equipment, location, and workers. However, more business risk and uncertainty
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
Franchisees Advantages
Management training and support, Brand-name appeal, Standardize quality of goods and services, National and local advertising programs, Financial assistance, Proven products and business formats, centralized buying power, Site selection and territorial protection, Greater chance for success.
Franchisees Disadvantages
Franchise fees and profit sharing with the franchiser, strict adherence to standardized operations, Restrictions on purchasing, Limited product line, Possible market saturation, Less freedom in business decisions.
Help for small-business managers
Programs that provide small-business owners with invaluable assistance in managing their businesses often at little or no cost to the owner.
Small Business Development Centers (SBDCs)
SBA program in which centers housed at colleges and other locations provide free training and technical information to current and prospective small business owners
The Service Corps of Retired Executives (SCORE) and the Active Corps of Executives (ACE)
Are volunteer agencies funded bu the SBA to provide advice for owners of small firms. Both are staffed by experienced managers whose talents and experience the small firms could not ordinarily afford.
The Future for Small Business
Demographic Trends, Technological and Economic Trends
Demographic Trends
Demographic trends reveal developments and changes in human population. More specifically, demographic trends relate to changes in a population’s age, gender, geographical location, marital status, educational attainment, employment status, household income, race, religion, and health.
Technological and Economic Trends
Technology is a key factor in driving economic growth. From the development of steam and electrical power to the innovations of the information age, technology has contributed to rising levels of productivity and higher living standards. Today, biotechnology and the growth of so-called “green technology” appear to be the latest technological trends that will propel the global economy.
Arianna Huffington
Launched a news and blogging website in 2005, that now attracts 25 million views a month.
Making Big Businesses Act
small business is the best way to interact with customers / clients while big business is a more efficient way to make money. When both are put together it’s the best of both worlds.
downsize or right-size
to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Intrapreneurs
Individuals in large firms who take responsibility for the development of innovations within the organizations.

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