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Chapter 6Entrepreneurship andSmall Business Management6-1 Becoming an Entrepreneur6-2 Small Business Basics6-3 Starting a Small BusinessIntroduction to Business Thomson South-Western

LESSON 6-1Becoming an EntrepreneurGoalsn Identify characteristics of successfulentrepreneurs.n Recognize the importance ofentrepreneurship in the economy.n Describe opportunities and risks ofentrepreneurship.Chapter 6Slide 2Introduction to Business Thomson South-Western

Key Termsn entrepreneurn entrepreneurshipn venture capitaln innovationn improvementChapter 6Slide 3Someone who takes arisk in starting a businessto earn a profit.Process of starting,organizing, managing &assuming theresponsibility for abusiness.Introduction to Business Thomson South-Western

CHARACTERISTICS OFENTREPRENEURSn Desire to be your own bossn Special skills and abilitiesChapter 6Slide 4Introduction to Business Thomson South-Western

ENTREPRENEURSIN ACTIONn Pankaj Aroran Rich Stachowskin Jeffrey Rodriguez and John Serranon Abbey FleckEntrepreneurship StatsChapter 6Slide 5Introduction to Business Thomson South-Western

WHAT DOES IT TAKE?Entrepreneurs are moren self-confidentn persistentn creativen inquisitiven reliablen energeticn competitiven goal orientedn independentChapter 6Slide 6Introduction to Business Thomson South-Western

WHAT DOES IT TAKE? (continued)Entrepreneurs haven problem-solving skillsn tolerance for ambiguityn strong integrityn personal initiativen ability to secure resourcesn capability to learn from failuren willingness to work hardChapter 6Slide 7Introduction to Business Thomson South-Western

C H E C K P O I N TWhat personal characteristic are commonto most successful entrepreneurs?Chapter 6Slide 8Introduction to Business Thomson South-Western

ENTREPRENEURSHIPAND THE ECONOMYn Employmentn Financingn ProductivityChapter 6Slide 9Venture Capital – moneyprovided by large investorsto finance new businesses orproducts.Introduction to Business Thomson South-Western

NUMBER OF EMPLOYEESIN NEW BUSINESSESChapter 6Slide 10Introduction to Business Thomson South-Western

C H E C K P O I N TWhat are the sources of financing thatentrepreneurs use for their newbusinesses?Chapter 6Slide 11Introduction to Business Thomson South-Western

Venture Capitalismn Looking for the next big product!Chapter 6Slide 12Introduction to Business Thomson South-Western

OPPORTUNITIESn Innovation – an invention or creationthat is brand new.n Improvement – a designed change thatincreases the usefulness of a product,service or process.Chapter 6Slide 13Introduction to Business Thomson South-Western

RISKSn Recognizing risksLack of adequate capitalLow salesHigher than expected expensesCompetitive pressureAn owner unprepared to manage a growingbusinessn Operations requiring more time than the owner iswilling to commitn n n n n Chapter 6Slide 14Introduction to Business Thomson South-Western

C H E C K P O I N TWhere do entrepreneurship opportunitiesbegin?Chapter 6Slide 15Introduction to Business Thomson South-Western

Activityn Complete 6.1 Activity handoutChapter 6Slide 16Introduction to Business Thomson South-Western

LESSON 6-2Small Business BasicsGoalsn Identify important characteristics ofsmall businesses.n Recognize the competitive advantagesof small businesses.n Identify problems faced by many smallbusinesses.Chapter 6Slide 17Introduction to Business Thomson South-Western

Key Termsn small businessn An independent business with fewer than500 employees.n Small Business Administration (SBA)n A government agency that helps smallbusiness owners develop business plansand obtain financing and other support fortheir companies.Chapter 6Slide 18Introduction to Business Thomson South-Western

What is a Small Business?n As defined by the SBA, A “SmallBusiness” is an independent businesswith fewer than 500 employees.n Using this standard, 99.7% of roughly 24million American businesses are smallbusinesses.Chapter 6Slide 19Introduction to Business Thomson South-Western

SMALL BUSINESSOWNERSHIPn Description of a small businessn n n n Owner is usually the managerOperates in one or very few locationsTypically serves a small marketNot dominant in its fieldChapter 6Slide 20Introduction to Business Thomson South-Western

Small Business Employmentn Small business employ nearly 50% ofall US workers.n On average small businesses areresponsible for creating 60-80% of allnew jobs.Chapter 6Slide 21Introduction to Business Thomson South-Western

COMMON TYPES OFSMALL BUSINESSESChapter 6Slide 22Introduction to Business Thomson South-Western

Ownership Diversity/Smallbusiness startupsn Half of all small businesses are homebased businesses.n Many small business ventures are parttime or service businesses, i.e., work is notconstantly being completed.n To start these small, home-basedbusinesses, Entrepreneurs needed anaverage of 5,000 of initial capital.Chapter 6Slide 23Introduction to Business Thomson South-Western

Ownership Diversity/Smallbusiness startupn Full time businesses with buildings,equipment, and employees may requirewell over 100,000 of initial capital toget started.Chapter 6Slide 24Introduction to Business Thomson South-Western

C H E C K P O I N TWhat percentage of employees in theUnited States work for small businesses?Chapter 6Slide 25Introduction to Business Thomson South-Western

SMALL BUSINESSADVANTAGESn Meeting customer needsn Providing unique servicesChapter 6Slide 26Introduction to Business Thomson South-Western

Meeting Customer Needsn Can provide specialized goods/servicesthat larger businesses would notconsider profitable to provide.n Easier for small businesses to meet theprecise needs of customers.n Small businesses owners often havedirect relationships with theircustomers.Chapter 6Slide 27Introduction to Business Thomson South-Western

*Assignment - Small vs. Large Businessn Detail the pros and cons of small businessesvs. large businesses.n Write you responses down on papern Include the names of everybody at your table onyour paper.n Must include five pros and five cons for both largeand small businesses. You should have a total of20 separate items on your sheet.n You can use a textbook to help you with yourideas.n You have 15 minutesChapter 6Slide 28Introduction to Business Thomson South-Western

C H E C K P O I N THow can small businesses competesuccessfully with larger businesses?Chapter 6Slide 29Introduction to Business Thomson South-Western

COMMON REASONS FORSMALL BUSINESS FAILUREn n n n n n n Not keeping adequate recordsNot having enough start-up moneyLack of management experienceLack of experience with the type of businessNot controlling operating expensesPoor location for the businessFailure to manage credit offered to customersChapter 6Slide 30Introduction to Business Thomson South-Western

*Assignment – Applied Math1.2.3.4.5.6.7.8.Grab a bookGet into your stock project groupsOpen Microsoft excelUsing the numbers from the graph on page 133, convert eachpercentage into the actual number of small business there arein each industry.There are 24 million small businesses in the US.Save you calculation as: “GroupName Small BusinessCalc” into the Applied Math folder. Hand In - Barrett - Business 4B - Applied MathYou will submit one dataset per group.Project worth 30 pts, and must be submitted today.Chapter 6Slide 31Introduction to Business Thomson South-Western

SMALL BUSINESSASSISTANCEn Faculties of universities and collegesn Local groups of business peoplen Small Business Administration (SBA)Chapter 6Slide 32Introduction to Business Thomson South-Western

C H E C K P O I N TList common reasons for small businessfailure.Chapter 6Slide 33Introduction to Business Thomson South-Western

LESSON 6-3Starting a Small BusinessGoalsn Recognize important factors to beconsidered when starting a business.n Describe the elements of a businessplan.n Identify types and sources of financingfor a small business.Chapter 6Slide 34Introduction to Business Thomson South-Western

Todayʼs Key Termsn business plann start-up financingn short-term financingn long-term financingChapter 6Slide 35Introduction to Business Thomson South-Western

THE BUSINESS DECISIONn An idea plus experiencen Business ideas come from many sources.n Hobbies, interest, and previous businessexperiences often give people ideas for newbusinesses.n Few people should think about stating abusiness without working for some time in asmall businessn Several years of training in a range of businessoperations will prepare you for the role of ownerChapter 6Slide 36Introduction to Business Thomson South-Western

THE BUSINESS DECISIONn Right place and timen Location, location, locationn Most retail businesses need good customertraffic.n A wholesaler needs easy access tomanufactures.n Manufactures have easy access to rawmaterials.n Transportation systems must also be easilyaccessible.Chapter 6Slide 37Introduction to Business Thomson South-Western

THE BUSINESS DECISIONn Team approachn A business in not easy to start without thehelp of others.n Employees must be selected for their ability towork as a team.n Choosing TEAM members is one of the mostimportant initial business decisions.n Small business owners will need assistancefrom people with specialized businessknowledge.n Ex: bankers, lawyers, and accountantsChapter 6Slide 38Introduction to Business Thomson South-Western

THE BUSINESS DECISIONn Preparation and researchn Preparation includes having enoughinformation to make good decisions aboutthe business.n Time spent gathering and studyinginformation before the business is startedwill save time and avoid later problems.n Examples of useful information includesn n n n Chapter 6Slide 39Customer infoCompetitor analysisGovernment regulationsExc.Introduction to Business Thomson South-Western

C H E C K P O I N TWhy is it important to use a teamapproach when starting a new business?Chapter 6Slide 40Introduction to Business Thomson South-Western

Small Group Discussion (10 min)n Scenario: p 139You are planning to open a small business identify three possible business locations inyour community and discuss which locationwould be best for the business.n Write a two paragraph essay describing yourthree locations and why you choose them.(put all of your names on the paper)Chapter 6Slide 41Introduction to Business Thomson South-Western

Developing a Business Plann Q: Often times, what is the differencebetween a successfully business andone that fails?n A: A well written, and followed,business plan.Chapter 6Slide 42Introduction to Business Thomson South-Western

WHAT IS ABUSINESS PLAN?n A business plan is a writtendescription of the business idea andhow it will be carried out, including allmajor business activities.Chapter 6Slide 43Introduction to Business Thomson South-Western

Key Features of a Business Plann General description of the company.n The credentials of the owner(s)n A description of the product or servicen An analysis of the marketn Demand, customers, and competitionn A financial planChapter 6Slide 44Introduction to Business Thomson South-Western

Key Features Cont.n Most business plans are developed forone year and then updated for the nextyear.Chapter 6Slide 45Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLANn Description of the Businessn n n n n The business ideaMajor products and servicesOwnership structureStrengths/weaknessesLong- and short-term goalsChapter 6Slide 46Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLAN(continued)n Description of Competitionn Characteristics of the industryn Condition of the economyn Strengths and weaknesses of majorcompetitorsChapter 6Slide 47Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLAN(continued)n Customer Analysisn Description of customersn Location, number, and resources ofcustomersn Sales forecastsChapter 6Slide 48Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLAN(continued)n Operations Plann n n n Organization of the companyDescription of major operationsAnalysis of resources neededHuman resource plansChapter 6Slide 49Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLAN(continued)n Marketing Plann Description of major marketing activitiesn Description of resources neededn Schedule of marketing activitiesChapter 6Slide 50Introduction to Business Thomson South-Western

ELEMENTS OF ABUSINESS PLAN(continued)n Financial Plansn n n n Start-up costsShort- and long-term financial needsSources of financingBudgets and financial statementsChapter 6Slide 51Introduction to Business Thomson South-Western

STEPS IN DEVELOPINGTHE BUSINESS PLANn Gather and review informationn Develop the “game plan”n Write the plann Ask an expert to review the planTurn to page 141 in your text. Read thesection titled “Steps in Developing theBusiness PlanChapter 6Slide 52Introduction to Business Thomson South-Western

C H E C K P O I N TWhat is the “game plan” in a businessplan?Chapter 6Slide 53Introduction to Business Thomson South-Western

FINANCING THE SMALL BUSINESSn Types of financingn Start-up financingn The amount of money needed to open thebusiness.n Short-term financingn Money needed to pay for the current operatingactivities.n Long-term financingn Money needed for the main resources of abusiness (land, buildings, and equipment thatwill last for many years).Chapter 6Slide 54Introduction to Business Thomson South-Western

FINANCING THE SMALL BUSINESS cont.n Sources of financingn Owner-supplied fundsn Borrowed funds (returned interest)n Proprietorship funding –n Partnership funding –n Corporate funding -Chapter 6Slide 55Introduction to Business Thomson South-Western

C H E C K P O I N TIn addition to owner-supplied capital, whatare several other sources of financing fora small business?Chapter 6Slide 56Introduction to Business Thomson South-Western